What does the FDD say about lease costs?

The FDD addresses lease costs primarily in Item 7 (estimated initial investment), which includes a range for initial lease deposits, first month's rent, and sometimes build-out cost. It does not detail annual CAM obligations, NNN pass-through ranges, or reconciliation exposure. Item 6 covers required fees and may reference ongoing royalty and technology fee obligations but typically does not cover third-party lease costs.

What is Item 7 in a franchise FDD?

Item 7 is the estimated initial investment table. It shows the typical range of costs to establish and open a franchise location, including franchise fees, equipment, build-out, initial inventory, deposits, and the first few months of rent. The rent line in Item 7 usually represents the initial outlay (deposit and first month) rather than the ongoing annual occupancy cost including NNN pass-throughs.

Does the FDD cover CAM charges?

No. The FDD does not describe the CAM obligations you will face at a specific location. CAM obligations are defined in the individual lease you sign with the property landlord, not by the franchisor. The FDD may note that leases are typically NNN or modified gross and that occupancy costs will vary by location, but it does not quantify CAM exposure.

What should I look for in the FDD about occupancy costs?

Look at Item 7 for the rent range used in initial investment calculations — this tells you what the franchisor believes a typical site costs to open, though it may understate total occupancy cost. Look at Item 19 if the franchisor provides financial performance representations, and see whether store-level financials include an occupancy cost line and what it covers. Items 8 and 9 may reference required facilities. Item 12 covers territory and location rights that affect site options.

Can I negotiate CAM terms before signing the lease even if the FDD doesn't cover them?

Yes. The FDD governs the franchise relationship. The lease is a separate contract between you and the landlord. You can negotiate CAM exclusions, management fee caps, controllable expense caps, and audit rights in the lease regardless of what the FDD says. The franchisor's real estate team may review or influence the lease terms, but negotiating CAM protections is your responsibility as the lessee.

The FDD and Lease Costs: What Disclosure Items Reveal About Occupancy Risk

The franchise disclosure document is the most comprehensive pre-purchase disclosure in the franchise relationship. It runs 200 to 400 pages and covers 23 items prescribed by the FTC Franchise Rule. Prospective franchisees spend hours on Item 19 financial performance representations and Item 21 audited financials.

What the FDD does not contain: meaningful disclosure about ongoing CAM obligations, NNN pass-through exposure, or reconciliation risk at the specific location you will lease.

Understanding where the FDD ends and where your lease exposure begins is a practical piece of financial literacy for anyone evaluating a franchise investment.

What Item 7 Actually Shows

Item 7 is the estimated initial investment table. It lists every category of startup cost with low and high ranges. The table typically includes:

Initial franchise fee
Training expenses
Real estate and leasehold improvements
Equipment and furniture
Initial inventory
Business licenses and professional fees
Initial advertising fund contribution
Additional funds (operating reserves)

The real estate lines in Item 7 usually show a deposit range (first and last month's rent, security deposit) and sometimes the estimated cost of leasehold improvements. The rent line often represents an annualized range of base rent at the kinds of locations where franchisees typically open.

What it does not show: the NNN component. A franchisor who shows a base rent range of $24 to $48 per square foot in Item 7 is not showing you the all-in occupancy cost. Add CAM, taxes, and insurance — which can range from $6 to $18 per square foot depending on market and property type — and the actual occupancy cost is materially higher than the Item 7 range suggests.

This is not necessarily deception. The FDD is not required to disclose third-party lease costs in detail, and those costs vary by location and negotiation. But it means the Item 7 investment estimate understates what occupancy will actually cost during operation.

What Item 6 Tells You (and Does Not)

Item 6 discloses fees paid to the franchisor or its affiliates. It covers ongoing royalties, technology fees, marketing fund contributions, training fees, and any other recurring payments due under the franchise agreement.

Item 6 does not cover payments to third parties like landlords. Your monthly base rent and NNN pass-throughs are not fees paid to the franchisor, so they do not appear in Item 6. This creates a gap: Item 6 looks like a complete picture of your ongoing cost obligations, but it omits the single largest line item on most store-level P&Ls after cost of goods and labor.

When you read Item 6, add your estimated total occupancy cost to the ongoing fee total for a full view of your contractual cost obligations.

Item 19 and What It Says About Occupancy Costs

Item 19 is optional. Franchisors are not required to include financial performance representations, and many do not. Among those that do, the level of detail varies significantly.

The most useful Item 19 disclosures include store-level income statements for a sample of locations, showing revenue, cost of goods, labor, and sometimes occupancy cost as a line item. When occupancy cost appears, check what it includes: base rent only, or base rent plus NNN pass-throughs?

A disclosure that shows occupancy cost as $45,000 per year for a 2,000-square-foot location may be showing only base rent at $22.50 per square foot. If that location is in a NNN center where CAM, taxes, and insurance add $10 per square foot, actual occupancy cost is $65,000 per year — a 44% difference from what the Item 19 representation shows.

If the franchisor provides Item 19, contact the franchisees listed in Item 20 (franchisee list) and ask specifically about total occupancy cost including NNN, not just base rent. Franchisees who have been operating for three or more years will have completed multiple reconciliation cycles and can tell you what the all-in cost looks like.

What the FDD Does Not Require Disclosure of

The FTC Franchise Rule does not require franchisors to disclose:

Typical CAM rates at existing or proposed locations
Frequency or magnitude of CAM true-ups across the system
How CAM obligations have changed over time for existing franchisees
Whether systemic overcharges have been identified at any properties
The audit rights provisions in standard leases used across the system

Some franchisors provide guidance on lease negotiation, standard lease terms they push landlords to include, or real estate advisory support that addresses these issues. Many do not. The FDD's silence on these topics is not an indication of their importance.

The Lease Is the Document That Governs Your Obligations

Everything in the FDD is about the franchise relationship. Everything about your site's occupancy cost is in the lease. These are separate contracts with separate parties. The FDD tells you what you owe the franchisor. The lease tells you what you owe the landlord.

When evaluating a franchise investment, build the occupancy cost model from the lease — not from the FDD and not from the landlord's quoted rate. The components to model:

Base rent (the number that gets the most attention)
Estimated annual CAM (request a three-year history from the landlord)
Estimated annual taxes (request the prior year's bill and check for any upcoming reassessment)
Estimated annual insurance
Expected true-up exposure in year one (estimates are set before your operations begin, and actuals often differ)

Once you are operating, the annual reconciliation is the document that needs review. The FDD does not help you there. Your lease does, specifically the audit rights clause that allows you to request backup documentation and verify that charges match what the lease allows.

The Practical Implication

The FDD is required reading before signing a franchise agreement. But for occupancy cost management, it is background context rather than the primary source.

The primary sources are your lease and annual reconciliation statements. Before you sign the lease, those documents are negotiating tools. After you sign, they are the basis for annual verification. The combination of a well-negotiated lease and consistent reconciliation review is what keeps occupancy cost in line with what you modeled when you made the investment decision.

Start by uploading your reconciliation and lease to CAMAudit to see what your current occupancy cost exposure actually looks like against what the lease authorizes.

The FDD and Lease Costs: What Disclosure Items Reveal About Occupancy Risk