The North American Securities Administrators Association (“NASAA”) Statement of Policy Regarding the Use of Franchise Questionnaires and Acknowledgments (“NASAA Statement of Policy”) became effective on January 1, 2023. As we discussed in our last blog, the NASAA Statement of Policy prohibits a franchisor from using a number of questions typically included in the Acknowledgements or Franchisee Questionnaires commonly used by franchisors. Once the prohibited questions are removed, these documents may be of little value to the franchisor.
The NASAA Statement of Policy is not a law, but it is expected that most or all of the franchise registration states will adopt the NASAA Statement of Policy (as they have adopted other NASAA commentaries in the past) and will implement it with state registration filings in 2023. The following is a summary of recent developments from the registration states.
California amended its franchise law effective January 1, 2023. Along with other changes, the amendments to the California franchise law prohibit any provision in a franchise agreement, FDD, or other writing, disclaiming (i) representations made by the franchisor or its agents to a prospective franchisee; (ii) reliance by a franchisee on any representations made by the franchisor or its agents; and (iii) reliance by a franchisee on the Franchise Disclosure Document and any exhibits. Any such disclaimers are deemed contrary to public policy and void and unenforceable. While California regulators had already taken positions consistent with the NASAA Statement of Policy in requiring certain acknowledgements or questions be removed, this new law solidifies that California has fully adopted the NASAA Statement of Policy. Therefore, it would be advisable for franchisors using such acknowledgements and questionnaire to immediately stop using them in California or to only use them after prohibited statements are removed.
On January 23, 2023, the state of Washington issued a notice stating that the Securities Division is considering proposing an amendment to the state’s franchise law to formally adopt the NASAA Statement of Policy. However, in practice the Washington franchise examiners have already been issuing comments requiring revisions to the acknowledgements and questionnaire used by franchisors.
On January 23, 2023, Maryland issued an Interpretive Opinion adopting the NASAA Statement of Policy as of January 30, 2023. However, they are not requiring franchisors to file immediate amendment or renewal applications to get their documents in line with the NASAA Statement of Policy as long as the franchisor takes specific steps outlined in the Opinion until their next amendment or renewal filing. These steps include immediately using the legend set forth in the NASAA Statement of Policy in their Franchise Disclosure Documents and Franchise Agreement, and either deleting the Acknowledgements or Questionnaire entirely or including a statement that the prohibited acknowledgements or questions will not apply to Maryland residents.
Beyond these 3 states, we have already received comments from a couple of other state regulators on filings submitted after January 1, 2023 requiring changes to our filings consistent with the NASAA Statement of Policy even though we have not received any word from the states about formal steps to adopt the policy.
There continues to be no word from the Federal Trade Commission on the NASAA Statement of Policy. Although it seems likely that all franchise registration states will adopt the NASAA Statement of Policy either formally or informally, there is a question about whether franchisors can continue to use the Acknowledgements and Questionnaires they have been using with prospective franchisees in non-registration states.