Beyond the Binder: Item 16 – Restrictions on What the Franchisee May Sell
When you sign a franchise agreement, you’re not just agreeing to follow the franchisor’s system; you’re agreeing to sell exactly what they allow you to sell. Item 16 of the Franchise Disclosure Document (FDD) spells that out in black and white: the products and services you can offer, and just as importantly, those you cannot.
It might seem straightforward, you buy a franchise to operate a specific business, after all. But the devil is in the details. How restrictive Item 16 is, and how those restrictions are enforced, can have major implications for your bottom line, your customer relationships, and your long-term ability to adapt to market changes.
📋 What Item 16 Covers
Item 16 is all about control over your product and service offerings. It discloses:
Whether you are limited to selling only the products and services the franchisor specifies.
Whether you need the franchisor’s approval to introduce new items or services.
Whether the franchisor has the exclusive right to determine suppliers, pricing, or product mix.
Whether you are prohibited from selling competing or complementary products, even if your customers are asking for them.
In short, Item 16 is the franchisor’s mechanism for controlling the brand’s identity and ensuring consistency across locations. But in doing so, it also significantly limits your autonomy as a business owner.
⚠️ Why It Matters More Than You Think
At first glance, these restrictions might not seem like a big deal. But consider these real-world implications:
Lost Revenue Opportunities: If your customers are consistently asking for an item; like a gluten-free option, a popular seasonal drink, or a new service; but the franchisor hasn’t approved it, you may be prohibited from meeting that demand.
Slow to Innovate: Even if you have an innovative idea that could boost revenue, many franchisors retain complete discretion over whether you can test or introduce anything new.
Franchisor-Created Dependencies: If the franchisor controls not just what you sell but also where you buy it, they may monetize the supply chain; sometimes marking up products you’re required to purchase.
Legal Exposure: Selling unapproved items, even if they’re wildly successful, can trigger a default under your franchise agreement, putting your entire business at risk.
🧪 A Common Flashpoint: Franchisee Innovation vs. Franchisor Control
Item 16 disputes often arise when franchisees want to respond to their local market. For example, a frozen dessert franchisee might want to offer coffee in the winter to stabilize revenue but the franchisor says no. Or a sandwich shop owner might want to introduce a vegan option, but the franchisor won’t approve it because they haven’t negotiated a supply agreement for those ingredients.
Even minor deviations, like private-label sauces, local collaborations, or off-menu catering services, can be treated as violations if they haven’t been explicitly approved.
🧭 How to Approach Item 16 in Your Due Diligence
When reviewing an FDD, don’t gloss over Item 16. Instead:
Read every restriction carefully. Look for phrases like “must sell,” “may only sell,” and “subject to franchisor’s approval.”
Ask franchisees about flexibility. Do they feel they have any autonomy to test or propose new offerings? Have they successfully introduced anything new and what was that process like?
Ask about past disputes. Have franchisees ever been disciplined or threatened for selling an unapproved product or service?
Understand the approval process. Some franchisors outline a clear process and timeline for reviewing new product proposals. Others retain total discretion and offer no guarantees.
🧠 The Takeaway
Item 16 might not be the longest section of the FDD, but it’s one of the most consequential for your day-to-day operations. It draws the line between what’s yours to decide as a business owner and what’s theirs to control as the franchisor.
If you’re a creative, market-responsive entrepreneur, these restrictions can feel suffocating. But even if you’re comfortable following a strict system, you still need to understand how those limitations will affect your revenue potential and customer satisfaction over time.
In franchising, what you can’t sell is often just as important as what you can, and Item 16 is where you’ll find that out.
The information provided in this post is for educational purposes only and is not intended as legal, financial, or investment advice. Franchise agreements are legally binding contracts that vary by brand and jurisdiction. Always consult with qualified legal and financial advisors before entering into any franchise relationship.
