I am a Franchisor and would like to lower my Initial Franchise fee. Is there any legality that I should follow before doing so

Great question! This is something that often creates some resentment among the existing franchisees. The degree to which you are exposed to any real legal threat may depend, in part, on the law that applies to each of your existing franchisee's agreements. In addition, it would be worth looking at your existing form(s) of agreement and previous disclosure documents to see whether the issue was anticipated in those document--it often is.

As a franchise attorney , who has actually walked the walk, owning and operating a very successful franchise, and a court-accepted, testifying franchise expert , I offer the following. To lower the initial franchise fee charged to new franchisees, you need to amend your existing franchise registration in California (and other states where you are registered). This is a fairly straightforward process. Unless you promised in your pre-existing franchise agreements to charge the same fees in perpetuity, which would have been crazy, you're free to adjust fees to current market conditions. This happens with quite a number of franchisors. Your best bet is to consult with a franchise attorney asap. You can do a search here on and find them. Many will talk to you at no charge for an initial consultation. That way you can present what happened in great detail and they can ask you questions about specifics so the best advice is provided. Kevin B. Murphy, B.S., M.B.A., J.D. Franchise Attorney & Franchise Expert Director of Operations - Mr. Franchise FRANCHISE FOUNDATIONS APC

As a Franchisor you have a Franchise Disclosure document that must be registered in approximately 14 States. If you are registered and even if you only sell in non-registration States you must amend the FDD before changing the initial franchise fee. If your fiscal year ends December 31 and you were registered last year then you must file your renewal by approximately April 15- depending on States at which time you can change your fee. This is not a quickly and you should have franchise counsel review

Assuming your franchise system is in California, you will need to submit this change to the Department of Business Oversight. A franchise registration in this state is typically valid from the effective date of the registration to 110 days after the end of your next fiscal year. If you wait until your renewal period to make this change, you can submit the change as part of your renewal application. If you don't want to wait until the renewal period, you will need to register a proposed material modification with the DBO. Modification to the initial franchise fee is pretty common for new and evolving franchise systems. Unless you made promises to your franchisees that you are not going to keep, you should be okay. If you want to discuss in detail, feel free to stop by my office in Irvine.

Dear Laguna Beach this is something very common; you are not required to keep the same franchise fee nor any other fee for that matter, nor any program or service you offer as a franchisor....to new franchisees. You are of course bound by all existing franchise agreements but going forward, as my colleagues have said, you do this as part of your renewal of your franchise registration in CA. If you have not yet registered in CA, then you just have whatever you want in the franchise agreement to be registered. It doesn't matter that the existing franchisees are paying a different rate or fee, your system has presumably improved and you are entitled to charge more for the initial fee. With on going royalties, you do have to take into consideration the ongoing relationship of franchisees paying differing royalties, and have to explain to the higher paying franchisees but with the upfront fee, really anything goes. As long as you have a properly prepared California Franchise disclosure Document, and have properly registered it, or qualify for an exemption to registration, you should be fine.