A reminder this franchise renewal season that the North American Securities Administrators Association’s (“NASAA”) Statement of Policy Regarding the Use of Franchise Questionnaires and Acknowledgments (the “Policy”) is not an issue that has stagnated. The Policy became effective early last year, with many states enacting internal policies before the 2023 filing season, and generally enforcing those internal policies through comment letters. In the “off-season” many states have had time to consider and reevaluate how they incorporate and enforce the Policy.
Once the Policy became effective, it was up to each registration state to determine its implementation. During this last franchise renewal season, this meant more and more franchisors added the NASAA-prescribed legend to their Franchise Disclosure Documents (a set of statements limiting a franchisor’s ability to waive or disclaim prior representations) and removed certain questionnaire and acknowledgment language through various means.
Three states (California, Maryland and Washington) adopted the policy through rule-making or other legal procedures. Further, New York has added the NASAA legend to its Form State Addendum, and regularly comments requiring that form state addendum. Outside of these formal adoptions, we have seen comments from Hawaii, Illinois, Minnesota, New York, North Dakota and Virginia, which have requested compliance with the Policy.
Many states previously permitted a form Questionnaire or Acknowledgement within the Franchise Disclosure Documents (FDD), so long as that document contains specific language denoting that the Questionnaire does not act as a waiver of state law, does not apply in the state, or that residents of such state should not sign. Many states have changed this form language over the last year, and franchisors should expect to see these continue to change as each state settles into its own internal policies.
As a reminder, the Policy lists 11 types of questionnaires and acknowledgments which it expressly prohibits as impermissible disclaimers, including:
- If the prospective franchisee has read or understands the FDD or any attachments thereto, including a franchise or other agreement.
- If the franchisor or the franchise seller has made any representation, including any financial performance representation, outside of or different from those in the FDD.
- If the prospective franchisee has had the opportunity to or has actually consulted with an attorney, accountant, or other professional advisor.
The Policy goes on to further prohibit any questionnaire or acknowledgment that would either cause a prospective franchisee to believe they have surrendered a right which they are entitled under law or shifts the franchisor’s disclosure duties to the prospective franchisee.
In addition, we have noticed through “off-season” comments that states have been changing their internal policies behind the scenes so you should be prepared to update your FDD with the most current internal state adoptions of the Policy.
In the midst of this renewal season, these internal state policies in response to the Policy are still changing. Please contact us if you have any questions about using questionnaires and acknowledgments, or the current requirements of the various states.