Mandatory Disclosure of Required Items under the Franchise Business Act: 3 Common Oversights by Franchisor Headquarters

Differences between required and recommended items, key checklist for franchisor headquarters under the Franchise Business Act disclosure obligations

Franchisor headquarters task: reviewing franchise agreements and information disclosures – required vs recommended items

CORE SUMMARY

Required items are products the franchisee must buy from the franchisor or a vendor appointed by the franchisor; recommended items may be purchased through other channels. The 2024 amendment to the Franchise Business Act requires the franchisor headquarters toObligatorily list the types of required items and the method for calculating supply pricesWhen changing transaction terms to the franchisee’s detriment, the franchisor headquarters mustconsult with the franchiseeIf common consumer goods are classified as required items, it may constitute a forced‑purchase violation

Required items refer to raw materials and components that the franchisee must obtain exclusively from the franchisor or a franchisor‑designated supplier; the law calls them “compulsory purchase items.” Recommended items are those the franchisor headquarters suggests, but the franchisee may source elsewhere. When the line between them is unclear, the franchisor headquarters can face unexpected legal risk. The 2024 revision of the Franchise Business Act tightens the definition and disclosure requirements, making it an ideal time for franchisor headquarters to audit their contracts.

Differences between required and recommended items

Purchase compulsion is the simplest distinguishing factor (concept image)

The simplest test is whether the franchisee is forced to buy. Required items must be sourced from a designated supplier; recommended items give the franchisee a choice. It is legitimate for the franchisor headquarters to designate core ingredients as required items to protect brand taste, quality, and consistency.

The issue starts with the question, “Is this truly a required item?” FTC rulings show that labeling a readily available commodity as a required item can be deemed an abusive ‘forced purchase’ under the Franchise Business Act. For example, containers for side dishes or rice that can be bought anywhere have previously been penalized.

“This cannot be classified as a required item” – the violation point

Generic items unrelated to brand identity have weak justification for designation

The bottom line is whether the item directly impacts brand identity. For items whose taste and quality vary by supplier—such as source blends, semi‑finished products, and core raw materials—designating them as required items is clearly justified. By contrast, generic consumables or standard industrial goods that produce the same result regardless of vendor have little basis for required‑item status.

Moreover, if the franchisor headquarters is charging a markup above the fair wholesale price for required items, that surcharge must be disclosed transparently. The excuse “it’s always been done that way” no longer holds.

What the franchisor headquarters must secure under the 2024 amendment

The 2024 amendment centers on mandatory contract disclosures (concept image)

The core of the amendment is the “disclosure obligation.” Effective July 3, 2024, the revised Franchise Business Act requires franchisor headquarters to list the types of required items and the method for calculating supply prices in every new or renewed franchise agreement. Existing contracts must be updated with this information by January 2, 2025.

The fact that this is more than paperwork is evident in the Fair Trade Commission’s actions. From July to October 2025, the commission surveyed 200 franchisor headquarters across 21 industries to verify implementation of the required‑item system, and it has recently begun on‑site inspections of contract disclosures at 100 major franchisor headquarters.

Renewals and amendments pose the greatest risk

The same mistakes easily recur during renewal or amendment phases (concept image)

Many franchisor headquarters perfect the initial contract but repeat errors during renewals or amendments. A critical pitfall is the duty to negotiate. If a required‑item condition is changed to the franchisee’s disadvantage, the franchisor headquarters must negotiate with the franchisee. Simply notifying the franchisee of a price increase or new item is insufficient; documenting that a negotiation took place is now essential.

When contracts are few, manual tracking is possible, but as the number of franchise locations grows, it becomes impractical to verify that every contract renewal and amendment is consistently reflected across all documents.

Three common oversights franchisor headquarters should audit at a glance

Before reopening the contract, check these three items first (concept image)

Ultimately, the key is delivering the finalized details on time and without omission.

Decision‑making rests with the franchisor headquarters; the system supports execution and timing management.

The parts that the headquarters must decide are clear from what we’ve covered so far. Determining which items are mandatory and how to record them in the contract is an area settled by headquarters policy and advice from franchise trade experts and attorneys. No one can make that judgment for you.

However, distributing the finalized documents to prospective franchisees without gaps and updating them at each renewal is a separate operational task. Even a perfect judgment is wasted if delivery is missed or renewal timing is overlooked.

Franchisor headquarters operating ERPFDAMFDAM’s role is exactly this “execution and timing.” By uploading the information disclosure and franchise contract files that list required and recommended items, you can send them as pre‑delivery documents to prospective franchisees and continue the flow into electronic signing. Because the system logs which documents were sent to whom and when, it reduces omissions in the pre‑delivery stage. It also provides an automatic alert 30 days before contract expiration, so you don’t have to rely on memory to re‑incorporate revised provisions at renewal.

The system will continue to be refined. The important thing is that the headquarters maintain an operational foundation that can reliably follow each change. Our 25‑year experience in franchise IT is built into that foundation design. If you want to review your headquarters’ contract and document management during this regulatory transition, start a light conversation with an FDAM implementation consultant.

Frequently Asked Questions