What is FDD Item 19 Earnings Claims?

What it is

Voluntary financial performance representations in the FDD. About 70% of franchisors include some Item 19.

Why it matters in your deal

For franchise buyers and multi-unit operators, fdd item 19 earnings claims matters because it can change economics, leverage, closing certainty, post-close exposure, or the attorney questions that need to be answered before capital is committed. Risk signal: High. The structure of what is disclosed often matters more than the headline numbers.

Real example

A franchise buyers and multi-unit operators can see fdd item 19 earnings claims language that looks routine until it controls leverage, money, timing, remedies, or closing risk. The practical question is not just what the clause says, but what it lets the other side do when the deal becomes stressed.

Red flags to watch

• •One-sided language that gives the other party discretion while limiting your consent, notice, cure, or remedy rights.
• •Undefined dollar caps, timing rules, notice methods, survival periods, territory, or trigger conditions.
• •Cross-references that move the real obligation into an exhibit, schedule, FDD item, lease addendum, or outside policy.
• •Terms that conflict with the franchise buyers and multi-unit operators diligence plan, financing assumptions, operating model, or counsel review checklist.

What to do

1. 1Quote the operative fdd item 19 earnings claims language and send the full surrounding section to counsel.
2. 2Tie the clause to economics, timing, remedies, assignment rights, consent requirements, and any closing condition it affects.
3. 3Ask for revisions that replace discretion with objective standards, defined notice periods, measurable caps, and clear cure rights.
4. 4Confirm the governing law, jurisdiction, and document cross-references before relying on the clause in negotiation.

Sources

1. eCFR - 16 CFR Part 436 Franchise Rule
2. eCFR - 16 CFR 436.5 disclosure items
3. FTC - A Consumer's Guide to Buying a Franchise