Item 5 of the Franchise Disclosure Document discloses every upfront fee that a franchisee must pay before the franchise opens. These fees represent the franchisor’s initial revenue from awarding a new franchise or development rights.
Typical Item 5 fees include:
initial franchise fee
multi unit development fees
territory fees
initial training fees (if charged)
initial technology or onboarding fees
first installment payments
The purpose is full transparency around the cost of acquiring the franchise rights.
Item 5 affects:
the capital needed to start the franchise
the economic relationship between franchisor and franchisee
SBA lending and underwriting
franchise sales qualification
multi unit development planning
Federal and state regulators review Item 5 closely because misleading or incomplete fee disclosures can lead to:
rescission claims
examiner rejection
enforcement penalties
misrepresentation disputes
Item 5 must include:
amount of each initial fee
when the fee is due
whether fees are refundable
conditions for partial refunds
whether multi unit discounts or credits apply
who receives the fee (franchisor, affiliate or area representative)
whether fees vary by territory or location
If fees differ across states, that must be disclosed or addressed in state addenda.
State examiners request clarification when:
refundability is unclear
fees differ between franchisees
affiliate involvement is undisclosed
development fees are inconsistently structured
the franchisor references “initial fee” in multiple places
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Last updated: November 26, 2025
