New York Codes, Rules and Regulations › Title 13 - DEPARTMENT OF LAW › Chapter VII - FRANCHISE OFFERINGS › Part 200 - FRANCHISE OFFERINGS › Section 200.6 - Impoundment of funds

Current through Register Vol. 46, No. 28, July 10, 2024
(a) If
				the Department of Law finds that the franchisor has failed to make adequate
				financial arrangements to fulfill its obligation to provide real estate,
				improvements, equipment, inventory, training, or other items included in its
				offering, the department may impose an escrow of up to the full amount of the
				franchise fees and other funds paid by the franchisee or subfranchisor until
				the franchisor's obligations are fulfilled.
(b) When an escrow is imposed, the franchisor
				shall be the holder of the escrow funds. It shall place these funds in an
				escrow account established in a national bank located in New York or a New York
				bank or trust company. This account shall contain only escrow funds and shall
				be separate and apart from the franchisor's other accounts.
(c) All proceeds so deposited shall remain
				the property of the franchisee and shall not be subject to any liens or charges
				by the franchisor, or judgments, garnishments or creditor's claims.
(d) The franchisor and the bank or trust
				company shall, in establishing the franchisor's escrow account, make an
				agreement which shall authorize the department to inspect the records of the
				bank or trust company relating to the escrow account and permitting the bank to
				furnish to the department, at the department's request, a statement of the
				condition of the escrow account.
(e) When an escrow is imposed, the franchisor
				shall deliver to each franchisee or subfranchisor a purchase receipt evidencing
				the receipt of funds from the franchisee on account of the payment of franchise
				fees, as that term is defined in section 681  of the General Business Law, and stating
				that the funds are to be held in escrow by the franchisor and deposited in an
				escrow account, setting forth the name of the bank or trust company in which
				the account is established, the address of the bank or trust company, the name
				of the account and the account number. Purchase receipts shall be consecutively
				numbered and prepared in quadruplicate, the original given to the franchisee or
				subfranchisor, the first copy to the bank or trust company, together with the
				payment received, the second copy retained by the franchisor, and the third
				copy sent to the department.
(f)
				The department shall authorize the franchisor to release those amounts of the
				escrowed funds applicable to specified franchisee or subfranchisor upon a
				showing satisfactory to the department that the franchisor has fulfilled its
				obligations under the franchise agreement to establish the franchise.
(g) An application for an order of the
				department authorizing the release of escrowed funds to the franchisor shall be
				verified and shall contain:
(1) a statement of
				the franchisor that required proceeds from the sale of franchises have been
				placed with the bank or trust company in accordance with the terms and
				conditions of the escrow agreement;
(2) a franchisee's verified statement of
				completion of franchisor's obligations for release of funds from
				escrow;
(3) a statement of the bank
				or trust company signed by an appropriate officer setting forth the aggregate
				amount of escrow funds placed with the depository, when required by the
				administrator;
(4) the name of each
				franchisee or subfranchisor and the amount held in escrow for the account of
				the franchisee or subfranchisor;
(5) a showing that the franchisor, with
				respect to a franchise, the funds for which are sought to be released, has
				completely performed its obligations, cited by reference to the franchise
				agreement and its provisions, to provide real estate, improvements, equipment,
				inventory, training or other items; and
(6) other information the department may
				reasonably require.