Franchise Information Disclosure Document: When New Fees Can Be Charged

Franchise Information Disclosure Document requirements can become especially important when a franchisor introduces a new fee or financial obligation. Under Korean franchise law, simply adding a new charge to the disclosure document may not always be enough to make existing franchisees responsible for paying it.

Why the Franchise Information Disclosure Document Matters

Before entering into a franchise agreement, a prospective franchisee should receive important information about the franchisor and the franchise system through the Franchise Information Disclosure Document.

This disclosure process is intended to help prospective franchisees understand the business relationship before making a substantial financial commitment. Among other matters, the disclosure document includes information concerning financial obligations that franchisees may be required to bear.

This becomes particularly important when a franchisor wants franchisees to pay a newly introduced fee.

Franchise Information Disclosure Document and New Service Fees

The case discussed here involved a franchisor that began charging franchisees a monthly “service fee” for administrative support.

The franchisor later included the service fee in its Franchise Information Disclosure Document. However, the existing franchise agreements did not originally contain that payment obligation.

The key issue was therefore not simply whether the fee had eventually been disclosed. The timing of the disclosure and the contractual relationship with existing franchisees also mattered.

Korean franchise law may permit certain financial obligations when there is an objectively recognized need, the relevant obligation has been properly disclosed in advance, and the franchise agreement is subsequently entered into on that basis.

However, adding a fee to a disclosure document after an existing franchise agreement has already been signed does not necessarily amend that agreement automatically.

Franchise Information Disclosure Document Compliance Requires Proper Timing

This case provides an important practical lesson for franchisors.

If a franchisor introduces a new financial obligation, it should carefully consider both disclosure requirements and the contractual basis for imposing that obligation. Updating the Franchise Information Disclosure Document alone may not be sufficient for existing franchisees.

Depending on the circumstances, the franchisor may need to renew or amend the franchise agreement so that the new obligation is properly incorporated into the contractual relationship.

Attempting to collect the fee first and documenting the arrangement later can create significant legal risk. A later agreement may not necessarily eliminate problems arising from earlier conduct.

What Franchisees Should Check

Franchisees receiving a request for a new service fee, administrative fee, or similar payment should review when the obligation was first disclosed and whether it appears in their franchise agreement.

They should also determine whether the franchisor is relying only on an updated disclosure document or whether the parties actually agreed to amend or renew the existing contract.

For franchisors, this case is also a reminder that disclosure compliance and contract drafting should be handled together rather than separately.

Before introducing a new fee across a franchise network, careful legal review can help determine whether the proposed charge has been adequately disclosed and contractually established.

At Pureum Law Office, we assist franchisors and franchisees with franchise agreements, disclosure requirements, fee structures, and disputes arising under Korean franchise law.

If you have questions about a Franchise Information Disclosure Document or a newly imposed franchise fee, please contact us at ask@pureumlawoffice.com.

Let us help.