Historically, when funding franchisee startups, the federal Small Business Administration [SBA] would examine the franchisor specific franchise agreement, and draft an individualized franchise specific addendum. The process was laborious. Each franchise agreement was reviewed. A franchise addendum was crafted for each specific franchise agreement. The crafting of the franchise specific addendum sometimes included jockeying over the exact verbiage. All this took time. The SBA complains it was draining on SBA resources. And, for prospective franchisees, it delayed the sales and franchise startup.
No more. Gone are the days of the franchise specific SBA addendums. The SBA has adopted a franchise agreement addendum template- One Size Fits All. It is a plain, simple, 1 ½ page document. It covers only 4 provisions:
Employment– Franchisor CANNOT hire, fire or schedule franchisee employees
Real Property Leasing– Franchisor MAY NOT record environmental restrictions of use or branding requirements if the property is the franchisor owns the property
Forced Asset Sales-the purchase price must be set by mutual agreement or by appraiser selected by franchisor and franchisee
Change of Owner– Franchisor shall not unreasonably hold consent for franchisee transfer and franchisor shall have first right of refusal for partial transfers among existing franchisees.
Note: the amended and abridged franchise addendum process does not alter SBA eligibility requirements. Franchisors and Franchisee have to follow the same eligibility process and requirements. Per the SBA addendum:
Note to Parties: This Addendum only addresses ‘affiliation’ between the Franchisor and Franchisee. Additionally, the applicant Franchisee and the franchise system must meet all SBA eligibility requirements.
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Trademarking and Franchise Law