Current through Register Vol. 41, No. 3, September 23, 2024
A.
Escrow requirement. The commission may require a franchisor to escrow franchise
fees and other payments made by a franchisee to the franchisor until the
franchisor's pre-opening obligations under the franchise agreement have been
satisfied. The commission may require escrow at any time after the submission
of a registration or renewal application and upon a finding that the grounds
enumerated in clause (i) of subdivision A 2 of § 13.1-562 of the Act as
provided in Chapter 668 of the 2007 Acts of Assembly exist.
B. Depository. Funds subject to an escrow
condition shall be placed in a separate trust account with a national bank or a
state chartered bank or trust company transacting business in the Commonwealth
of Virginia.
C. Compliance with
escrow requirement. The franchisor shall file with the commission the following
to comply with the commission's escrow requirement:
1. An original, fully executed copy of the
Escrow Agreement, Form K;
2. A
written consent from the depository agreeing to operate the escrow account
under this regulation;
3. The name
and address of the depository and the account number of the escrow
account;
4. The name, address,
telephone number and email address of an individual or individuals at the
depository who may be contacted by the commission regarding the escrow account;
and
5. An amended franchise
application reflecting, in Item 5 of the Franchise Disclosure Document or in a
Virginia Addendum to the Franchise Disclosure Document, that the commission has
imposed the escrow requirement and the material terms of that escrow condition,
including the name of the depository.
D. Operation of escrow account. After the
commission imposes an escrow requirement upon the franchisor, the franchisor
shall:
1. Make franchisee checks for franchise
fees or other payments for the franchisor payable to the depository;
and
2. Deposit with the depository,
within two business days of the receipt, the funds described in subdivision 1
of this subsection.
Deposits made to the depository shall remain escrowed until
the commission authorizes the release of the funds.
E. Release of escrowed funds.
1. A franchisor may apply to the commission
for the release of escrowed funds together with any interest earned.
2. A franchisor's application to the
commission to authorize the release of escrowed funds to the franchisor shall
be in writing, verified by an authorized officer of the franchisor and shall
contain:
a. The franchisor's statement that
all proceeds from the sale of franchises have been placed with the depository
in accordance with the terms and conditions of the escrow
requirement;
b. The depository's
statement, signed by an appropriate officer, setting forth the aggregate amount
of escrowed funds deposited with the depository and the franchisor's account
number with the depository;
c. A
list of the names and addresses of each franchisee and the amount held in the
escrow account for the account of each franchisee;
d. The amount of funds sought to be
released;
e. A written
certification from the franchisee stating the amount of funds to be released
that acknowledges that the franchisor has completely performed its pre-opening
obligations under the franchise agreement, including providing real estate,
improvements, equipment, inventory, training, or other items as required by the
franchise agreement; and
f. Other
information the commission may reasonably require.
3. If the commission finds that the
franchisor has fulfilled its obligations under the franchise agreement for a
specified franchisee, the commission shall authorize the depository to release
to the franchisor the amount held in escrow for the account of the applicable
franchisee.
F. Removal
of escrow requirement. The commission may remove the escrow requirement at any
time, if:
1. The franchisor agrees to defer
franchise fees and other initial payments; or
2. Based upon new information, the commission
finds that the escrow requirement is no longer necessary and appropriate for
the protection of prospective franchisees.
G. Deferral of fees in place of escrow
requirement.
1. In lieu of an escrow
requirement, the commission may, under appropriate circumstances, accept a
franchisor's agreement to defer franchise fees and other initial payments owed
by franchisees to the franchisor until the franchisor has completed its
pre-opening obligations under the franchise agreement.
2. The franchisor's agreement to defer
franchise fees shall be reflected in Item 5 of the Franchise Disclosure
Document or in a Virginia Addendum to the Franchise Disclosure
Document.
Statutory Authority
§§ 12.1-13 and 13.1-572 of the Code of
Virginia.
