COVID-19: State FDD Renewal Changes
In light of the COVID-19 pandemic, several states that require annual Franchise Disclosure Document (FDD) renewals made recent changes to their filing deadlines, fees and/or submission requirements, as set forth below.
On March 22, 2020, the California Department of Business Oversight announced the following:
- Through June 30, 2020, the department will waive the additional $225 filing fee for franchise renewals that are filed after the franchise registration has lapsed.
- The Department will accept documents filed on DocQNet that are signed electronically using e-signature software, such as DocuSign, in which case notarization of signatures will not be required.
The department is strongly urging that all filings made under the Franchise Investment Law (Corporations Code Section 31000 et seq.) be submitted electronically through the department’s self-service portal, DocQNet. For paper filings eligible for automatic effectiveness, the Department requests that filers acknowledge in their transmittal letter a waiver of automatic effectiveness to avoid the issuance of a stop order preventing automatic effectiveness in California and to acknowledge that their application will be made effective on the date designated by department order.
On March 29, 2020, the Hawaii State Department of Commerce and Consumer Affairs extended the deadline for franchise filings to April 30, 2020 in response to the COVID-19 pandemic.
The Department also encourages all franchisors filing renewal or initial filings to file online using the securities portal in order to facilitate the timely review of such filings.
The Illinois Office of the Attorney General has issued a notice providing that any franchisor that is currently and properly registered or exempted under the Illinois Franchise Disclosure Act, whose registration or exemption is due to expire between April 1, 2020 and June 1, 2020, is automatically granted an extension of 60 days from their anniversary date to file their franchise renewal application without penalty. If their franchise renewal application is mailed within the allotted extension time, franchisors do not need to submit more than the $100 annual report fee, may submit the same annual report documentation and will be shown as continuously registered in the administrator’s system.
Notwithstanding this extension, franchisors shall not enter into franchise agreements with the prospective franchisees until a complete renewal application or exemption renewal has been received by the Office of the Attorney General and any prospective franchisee has received this updated disclosure document.
On April 7, 2020, the Indiana Securities Commissioner issued an administrative order providing that the effective period for any franchise registration that was set to expire between March 16, 2020, and May 31, 2020, is automatically extended to June 30, 2020. Any renewal must be filed prior to this extended deadline.
On March 5, 2020, the Governor of Maryland declared a state of emergency in response to the spread of COVID-19. On March 17, 2020, the Securities Commissioner of Maryland issued an order extending current franchise registrations and exemptions that would have expired during the state of emergency for a period of time equal to 30 days after the date that the Governor of Maryland declares an end to the state of emergency. During the state of emergency, the Maryland Securities Commissioner will not take action against a franchisor (whose registration or exemption would have otherwise expired, but for the extension noted above) that offers franchises during the state of emergency using a Franchise Disclosure Document that has not been registered or deemed exempt so long as:
- The franchisor provides to the prospective franchisee a Franchise Disclosure Document that has been updated to reflect material information under the FTC Franchise Rule;
- The franchisor does not enter into a franchise agreement with the prospective franchisee until the franchisor files an updated franchise disclosure document with the Maryland Securities Division, and has been notified by the Maryland Securities Division that the Franchise Disclosure Document is effective for use under the Maryland Franchise Law or has been deemed exempt; and
- At least 15 days before the prospective franchisee executes a franchise agreement with the franchisor, the franchisor provides to the prospective franchisee a copy of the Franchise Disclosure Document registered or deemed exempt by the Maryland Securities Division, together with a copy of any changed pages showing all revisions to the Franchise Disclosure Document the prospective franchisee received.
Separately, the Maryland Securities Division has also stated that franchise registration applications may be filed on CD-ROM alone, rather than on both CD-ROM and paper. Maryland still requires payment of the applicable filing fee by check and has stated that the CD-ROM should be filed with a paper cover letter or application page identifying the name of the franchise, type of filing and file number, if assigned.
In light of the challenges related to the COVID-19 virus, the Minnesota Commissioner of Commerce issued an order on March 30, 2020, extending the deadline for franchisors to file annual reports that were due by April 30, 2020 to June 30, 2020. Franchisors are strongly encouraged to submit annual reports via an online e-File system. The annual report fee and a copy of the online submission(s) confirmation page must still be mailed to the Minnesota Department of Commerce.
The Minnesota Commissioner of Commerce also issued an order on March 30, 2020, waiving certain notarization requirements for franchises pursuant to Minn. R. Chapter 2860.9920 and 2860.9930. The waiver for notarizing forms is for new applications, amendments and annual reports filed through June 30, 2020.
On March 24, 2020, the New York State Department of Lawissued a memorandum stating that any registration renewal or amendment filings that would have been due between March 1, 2020 and April 30, 2020 (the “Relief Period”) is extended for 90 days from the end of the Relief Period. The availability of this relief may be revoked by the Department of Law by posting such revocation to its website. Any party eligible to rely on this relief will be given 90 days from the date of such revocation to make the required filing.
All filings required to be submitted directly to the Investor Protection Bureau or the Department of Law must be submitted by email in addition to the required paper and/or CD filings. Each email submission requiring any payment shall also contain:
- A copy of the front and back of the check to be mailed to the Department of Law, and
- A signed statement from the applicant (electronic or by hand) stating, in substance, that “I will cause this filing and any payment to be mailed to the Department of Law forthwith.”
Each paper filing should also include a print out of the cover email to the Department of Law. A franchisor that is filing a franchise registration renewal or an amendment may offer franchises, but not sell, until the Investor Protection Bureau reviews the application and notifies the franchisor in writing that its Franchise Disclosure Document has been accepted.
On March 16, 2020, the Supreme Court of Virginia issued a judicial emergency declaration effective March 16, 2020 to April 6, 2020. On March 17, 2020, the State Corporation Commission of Virginia issued an order extending any current franchise registrations and exemptions that expire while the judicial emergency declaration is in effect (March 16, 2020 to April 6, 2020) for a period of 21 days (or such other time period as may be subsequently ordered by the State Corporation Commission of Virginia or the Supreme Court of Virginia through any subsequent emergency order or declaration).
On April 2, 2020, the State Corporation Commission of Virginia issued an order providing that the prior extensions shall remain in effect during the pendency of the judicial emergency declaration (which was extended until April 26, 2020 on March 27, 2020), or any similar subsequent declaration, declaration extension or order of the Supreme Court of Virginia, or such other time period as may be subsequently ordered by the commission.
Separately, the Virginia Division of Securities and Retail Franchising will, until further notice, accept franchise renewal or amendment applications without requiring paper copies of the Franchise Disclosure Document. The Franchise Disclosure Document (clean and marked) may be submitted in PDF format on a CD-ROM or USB flash drive. Along with the CD-ROM or USB flash drive, a paper copy of the Form A application form and physical check in payment of the renewal or amendment fee is still required at this time. Other application forms may be included on the digital media.
On April 8, 2020, the Securities Division of the Washington Department of Financial Institutions published a notice concerning franchise filing requirements and filing fees as a result of the COVID-19 pandemic. The notice does not extend any current franchise registrations, but provides that applicants may pay the renewal fee of $100 to complete an application for franchise registration for any offering that was previously registered and that expired, or that will expire, between March 1, 2020, through June 20, 2020, until further notice. It is important to note, however, that this filing fee relief does not permit the offer or sale of franchises during a period in which the franchise registration has lapsed. The filing fee for franchise exemption notice filings remains $100 whether it is a new notice or a renewal.
The notice also waives notary requirements while social distancing directives remain in effect, and reminds filers that filings are required to be submitted electronically through Washington’s online filing system.
Franchisors with questions regarding FDDs and renewals, particularly in light of the Coronavirus pandemic, should consult a franchise attorney.
Taylor M. Vernon is an attorney in our Franchise & Distribution and Corporate Practice Groups.
This information provides an overview of a specific developing situation. It is not intended to be, and should not be construed as, legal advice for any particular fact or situation.