With regard to location licensing, you have to be careful about when a license agreement is appropriate. Just because an outlet is proposed at a non-traditional and/or captured market venue, it does not mean that the arrangement is outside franchise laws and regulations. The venue does not dictate whether a relationship is a franchise or a license.

A “franchise” exists under federal law if (a) the franchisor licenses the use of its trademark, (b) the franchisor exerts significant control over, or provides significant assistance to, the operator’s method of operation, and (c) the operator will make payment(s) to the franchisor. Be aware, certain states have lower requirements.

Many arrangements will meet this definition. Notwithstanding, the federal regulation provides certain exemptions, and if one or more of these exemptions are applicable, the franchisor will not need to provide the FDD or use the standard-form Franchise Agreement. Many non-traditional venue operators will either meet the net-worth exemption (a business operating for at least 5 years and has a net worth of at least $6.165M) or fractional franchise exemption (operator has been in the same type of business for at least 2 years and sales from the franchise are not expected to exceed 20% of the operator’s total sales).

However, the laws in registration states can get tricky, and the federal exemptions may not work in registration states or may require exemption filings prior to having any discussions with the proposed operator.