Frequently Asked Questions
Q – What is the FDD and how is it different from the Franchise Agreement?
- The Franchise Disclosure Document (FDD) is a set of 23 disclosures, referred to as Items 1-23, the contents of which are mandated by the Federal Trade Commission (“FTC”). These disclosures describe many details about the Epcon Communities Franchise opportunity such as the costs, the obligations of the franchisor and franchisee, and the benefits of the system. The FDD is not a contract. It is similar to a prospectus. Some states also require additional disclosure language to be included along with the required FTC disclosures.Item 22 contains copies of the contracts which you will likely enter into with us should you be awarded a franchise. The Franchise Agreement is actually one of those contracts and is an exhibit in the FDD. It is important to note that the Franchise Agreement is in fact, a stand-alone document, and is the primary contract that will govern the franchise relationship. Other related contracts may be required and are also contained in the FDD.
Q – What are the initial / upfront fees?
- Detailed information about the upfront fees associated with an Epcon Communities Franchise is located in Item 5 in the FDD. The franchisee must pay an Initial Franchise Fee in the amount of Fifty Thousand Dollars ($50,000), which is due upon signing of the Franchise Agreement. This Initial Franchise Fee is a one-time fee and non-refundable. Please review Item 5 of the FDD for additional information.
Q – What other types of ongoing fees will I be charged?
- All of the ongoing fees associated with the Epcon system are described in Items 5 and 6 in the FDD. The ongoing fees include a Monthly Franchise Fee (MFF), a Monthly Marketing Program Fee (MPF), and a Project Royalty Fee, a portion of which is paid upon the sale of each home that is sold/closedThe commencement of payments of the MFF and MPF may be delayed for up to 24 months from the signing of the Franchise Agreement in certain circumstances. Also, there are discounts available for the MFF and MPF if you are operating multiple projects simultaneously. Additionally, the MFF may be waived for a portion of a calendar year after we have received from you in a calendar year a defined sum of Monthly Franchise Fees and Point of Closing Royalty Payments. Please see Item 5 of the FDD for details on these adjustments.A Project Royalty fee payment of 1.75% of the purchase price of the home is due upon each closing. The rate is reduced to 1.5% per home in the event a franchisee closes between 51-100 homes in the same calendar year in any of its Epcon communities. The rate further reduces to 1.25% per home in the event a franchisee closes more than 100 homes in the same calendar year in any of its Epcon communities.In any calendar year, for the closing of the 25th home through the 36th home in a single project, you will receive a credit toward the Project Royalty Fee payment for each closing in an amount equal to the amount of your Monthly Franchise Fees paid on that particular project, thus providing a maximum potential credit of 12 Monthly Credits of $2,000 each and therefore potentially crediting all the Monthly Fees due for a particular community in that calendar year. Under no circumstances will you receive more than twelve (12) Monthly Franchise Fee payment credits toward payment of your Project Royalty Fee in any given calendar year.
Q – How much does it cost to start an Epcon Communities Franchise?
- Item 7 in the FDD details some of the anticipated costs associated with starting a new Epcon Community. We use a 30 unit project for the basis of the calculations in the FDD, and it is important to note that your startup costs will vary based on how large of a project you decide to develop. Your investment level will have many variables, and you must determine those costs for each opportunity you may have.We estimate the initial investment if purchasing 30 approved developed lots is between $638,500-$830,500. The out-of-pocket cost may be reduced by using bank or other financing options. If you elect to use financing we estimate that, the average out-of-pocket expenditures with developed lots in a 30 unit project are between $216,625 – $267,125.We estimate the initial investment if purchasing raw land to develop 30 lots is between $2,013,000-$3,288,000.The out-of-pocket cost may be reduced by using bank or other financing options. If you elect to use financing, the total estimated out-of-pocket expenditures with raw land in a 30 unit project are estimated to be between $604,000 – $933,500.
Q – What are the Note, Mortgage and Personal Guarantee associated with an Epcon Communities Franchise?
- Item 10 of the FDD contains all of the details regarding the Promissory Note, Mortgage, and Personal Guarantee. Like most franchisors, Epcon uses the Personal Guarantee to protect its trade secrets, intellectual property, enforce non-compete language and recover monies owed by franchisees if not paid when due. Unlike most other franchise business models, the operation of an Epcon Communities Franchise requires the acquisition and sale of real property. A mortgage on the property (which we subordinate to any bank liens), is used to secure payment of the Promissory Note, and all other fees that may be owed. Each franchisee is required to sign a Monthly Franchise Fee and Project Royalty Fee Promissory Note for a minimum of $150,000 for each project to be developed under the Franchise Agreement.
Q – So what does Epcon provide as support to me once I sign a Franchise Agreement?
- Item 11 in the FDD details all of Epcon’s Assistance, Advertising, Computers Systems and Training that are provided to franchisees. To start, we provide our franchisees a mandatory New Franchisee Orientation, an Operations Manual, and 11 additional manuals containing information related to the operation of the Epcon Communities Development System. Additional training programs currently being offered to franchisees often include Sales and Marketing Orientation, Construction Training, The Epcon National Conference, Additional Sales Training and a Regional Meeting.
Q – Once I commit to a franchise with Epcon, will I have a protected territory or a first right of refusal?
- Item 12 in the FDD contains detailed information on territory rights. Epcon does not offer a first right of refusal but does offer the opportunity to sign market area agreements to protect areas to be developed. At the time the Franchise Agreement is signed, a market area agreement is also signed. The Market Area is based on population as well as other factors, and protects the geographic area surrounding the project development site that will generate the most purchase support (typically 60%-70%) for the development. Generally speaking, a Market Area will roughly encompass a radius between 3 and 12 miles, from the site but will take into consideration existing natural and man-made boundaries and socioeconomic conditions in the area.
Q – Does Epcon require me to work full time in the franchise business?
- Item 15 outlines all the requirements with regard to the obligation to participate in the actual operation of the franchise business. Epcon does NOT require the franchisee to participate personally in a full time capacity in the development and construction of the Epcon Communities condominium development business. Epcon does, however, recommend that an individual with an ownership interest in the company directly participate in the day-to-day operations.
Q – I currently build another residential housing product. Do I have to give up my current business?
- Item 16 details the restrictions on what franchisees may sell. While we do not generally restrict the type of goods or services that a franchisee may offer, we do require that Franchisees not modify the Epcon Communities Development System without the express written consent of Epcon (except as necessary to comply with building codes and permits, and local, state and federal laws). We also prohibit, except in limited circumstances, the development and construction of residential homes SUBSTANTIALLY SIMILAR to our architectural plans and specifications for residential dwellings. In addition, the Franchisee’s non-competition obligation extends for 3 years after termination of the Franchise Agreement. See Item 17 for details.
Q – How much money can I expect to make by investing in an Epcon Communities Franchise?
- Item 19 contains the Financial Performance Representations pertaining to the Epcon Franchise opportunity. While we do not estimate the revenue or income that a franchisee might realize in the development and marketing of its Epcon Communities project, to enable them to have some understanding of the revenue they might expect, we provide historical information derived from all projects that had home sales during the last year. We highly recommend you speak to as many of our current franchisee builders as possible during your due diligence phase to discuss their business experiences with the Epcon System. We DO NOT make any financial performance representations other than those contained in Item 19.
Q – May I speak with other Epcon Franchise Builders about their experience?
- Yes, in fact, we encourage you to do so. Exhibit P in the FDD contains a list of all current Franchise Builders, their locations and their phone numbers.
Please note that nothing substitutes for your careful review of the Epcon Communities FDD and we encourage you to carefully review the FDD with an advisor of your choice.