Do I have to pay a deposit when investing in a franchise, and if so on what terms?

It is important at the outset to differentiate between a ‘deposit’ and the ‘initial fee’ that is often required by a franchisor. Not all franchisors require franchisees to pay a deposit before investing in a franchise. However, most franchisors do expect franchisees to pay an initial fee.  The difference between the two is that the franchisee may be asked to pay a deposit at the point he or she decides to go ahead with a franchise, but before the franchise agreement is signed, often to secure a particular territory. The deposit will usually be less than the initial fee and may be used to help find a suitable property or to research the territory.  A prudent franchisee should always ask what it will receive in return for a deposit, and the basis of the payment should be confirmed in writing before any monies are paid. The terms should set out whether or not the deposit is refundable, any time limits applicable and what, if any, proportion of the deposit will be credited towards the initial fee if the franchisee decides to go ahead.