Engel & Völkers: Litigation & Risk
Real Estate · FDD Items 3, 4 & 5
Elevated Risk
7 cases disclosed in FDD Items 3 and 4.
FDD Items 3 & 4
Litigation Metrics
- Cases disclosed
- 7
- Total from FDD Items 3 and 4
- Bankruptcy (Item 4)
- None
- Franchisor or officer bankruptcy
- Verdict score
- 59 / 100
- FranchiseVerdict composite · higher is better
- Rating
- A
- A / B / C / D / F verdict grade
7(a) FOIA data · FY2020–present
SBA Loan Performance
Aggregated from public SBA 7(a) loan disclosures. Charge-off rate is the share of loans that were charged off or settled for less than the full balance.
- Total 7(a) loans
- 8
- Government-backed loans issued
- Charge-off rate
- N/A
- vs 16% franchise average
- 5-yr charge-off rate
- N/A
- Defaults
- N/A
- Loans charged off or defaulted
- Total loan volume
- $1.2M
- Avg loan size
- $154K
- Participating lenders
- 7
FDD Items 5, 6 & 17: What You Give Up
Contract Risk Indicators
- Mandatory arbitration
- Not required
- You retain the right to sue in court
- Jury trial waiver
- Not waived
- Franchisor can compete
- No
- Right of first refusal
- Yes
- Franchisor can match any purchase offer when you try to sell
- Governing law
- NY
- State whose law governs disputes. Relevant if you're not based there
Extracted from FDD Item 3
Litigation Detail
3 pending cases (antitrust class actions re broker commissions: Gibson consolidated / Lopez), 1 pending (EVFL v. EVA breach of contract); 4 concluded cases. Settled Gibson for $6.9M and Lopez for $800K.
What drove the 59/100 verdict
Risk Score Breakdown
- 01MINORDeclining unit count (-0.8% YoY) signals system contraction and potential franchisee dissatisfaction
- 02HIGHMultiple active litigation streams (antitrust, breach of contract, no-poaching investigation) create legal and operational uncertainty
- 03MEDNo disclosed average revenue or net income data (absent Item 19) prevents legitimate ROI assessment and suggests franchisor may be hiding unfavorable unit economics
- 04MINORTiered royalty structure (6% to 3.75%) indicates potential performance-based penalties or variable profitability tiers that may disadvantage newer/smaller franchisees
- 05MEDReal estate brokerage model is commission-dependent and cyclical; vulnerable to market downturns and economic sensitivity
- 06HIGHAntitrust litigation specifically regarding 'broker commission rules' suggests franchisor practices may be under regulatory scrutiny and subject to forced change
Severity inferred from FDD text. Not a regulatory or legal classification
Litigation data from FDD Items 3, 4, and 5. SBA data from public 7(a) FOIA records (FY2020–present). Not legal advice. Consult a franchise attorney before signing any franchise agreement.