Subway FDD Item 17 is the section of the Franchise Disclosure Document that governs the three most consequential moments in any franchise relationship: renewal, termination, and transfer. For Subway franchisees, this item is especially important in the post-Roark Capital era because the renewal provisions determine whether existing franchisees will be forced onto the new, higher fee structure when their current agreements expire. At Lopes Law LLC, we consider Item 17 one of the most critical sections in any FDD review, and for Subway specifically, the implications of these provisions can define whether the franchise remains a viable long-term investment.

This guide explains what Subway discloses in Item 17, walks through the renewal conditions (including the requirement to sign the then-current franchise agreement), identifies the termination triggers that franchisees must understand, covers the transfer restrictions and right of first refusal, and addresses the mandatory arbitration provisions that govern dispute resolution.

What Is the Term of a Subway Franchise Agreement?

The standard Subway franchise agreement has a 20-year term. This is the period during which the franchisee has the contractual right to operate the Subway franchise, subject to compliance with all terms and conditions of the agreement.

A 20-year term is relatively long in the franchise industry. Many QSR franchise agreements have 10-year or 15-year initial terms. The longer Subway term gives franchisees more time to recoup their initial investment and build the business, but it also means that the franchisee is locked into the relationship and its obligations for two decades.

The term length matters most in the context of renewal. At the end of the 20-year term, the franchise does not automatically continue. The franchisee must actively renew, and renewal comes with conditions that can fundamentally change the economics of the franchise. Understanding what happens at year 20 is as important as understanding what happens at year one.

What Are the Conditions for Renewing a Subway Franchise?

Subway’s renewal provisions, disclosed in Item 17, establish several conditions that the franchisee must meet to continue operating beyond the initial 20-year term. The typical conditions include:

• Good standing: The franchisee must be in compliance with the franchise agreement at the time of renewal, with no uncured defaults or outstanding violations.
• Facility standards: The franchise location must meet current Subway design and operational standards. This may require renovation, equipment upgrades, or other capital expenditures before renewal is approved.
• Renewal fee: The franchisee must pay a renewal fee as disclosed in the FDD.
• Then-current franchise agreement: This is the most significant renewal condition. The franchisee must sign the then-current franchise agreement, which may contain materially different terms from the original agreement, including higher royalty rates, increased advertising contributions, new technology mandates, and revised operational requirements.
• Training requirements: The franchisee or their manager may need to complete updated training programs.
• Timely notice: The franchisee must provide renewal notice within the timeframe specified in the agreement.

The Then-Current Agreement Requirement: Why It Matters So Much for Subway

The requirement to sign the then-current franchise agreement at renewal is the single most important provision in Subway’s Item 17 for existing franchisees. Here is why.

If you signed a Subway franchise agreement five years ago with a royalty rate that was lower than the current 8%, you operate under those original terms for the remainder of your 20-year term. However, when your agreement expires and you seek to renew, you must sign the agreement that is in effect at that time, not the agreement you originally signed.

Following the Roark Capital acquisition in 2023, the then-current agreement includes the 8% royalty on gross sales, the 4.5% advertising contribution, updated technology mandates, and other revised terms. A franchisee who has operated profitably under the older fee structure may find that the economics of the franchise change dramatically at renewal. The financial modeling we did in our Subway Item 6 analysis illustrates how the higher royalty rate affects profitability at various revenue levels.

This provision effectively means that no Subway franchise agreement is truly a 20-year deal. It is a deal until renewal, at which point the terms can change materially. Every prospective Subway buyer should model their investment under the current fee structure, regardless of what historical terms may have existed, because those current terms are what you will face at renewal.

What Are the Termination Triggers in Subway’s Franchise Agreement?

Subway’s franchise agreement specifies events that can trigger termination of the franchise relationship. These termination triggers fall into two categories: defaults that allow a cure period and defaults that trigger immediate termination.

Defaults with Cure Period

These are violations where the franchisee is given a specified number of days (typically 10 to 30 days, depending on the nature of the default) to correct the problem before termination can occur:

• Failure to meet operational standards (cleanliness, food safety, customer service)
• Late payment of royalties, advertising contributions, or other fees
• Failure to submit required reports or financial statements on time
• Minor breaches of the franchise agreement that can be remedied
• Failure to maintain required insurance coverage
• Unauthorized modification of the restaurant’s appearance or operations

Immediate Termination Triggers (No Cure Period)

These are events that allow Subway to terminate the franchise agreement immediately without giving the franchisee an opportunity to cure:

• Abandonment of the franchise (failing to operate the location for a specified period)
• Bankruptcy or insolvency of the franchisee
• Conviction of a felony or crime involving moral turpitude
• Repeated defaults, even if individually cured (the “three strikes” concept)
• Material misrepresentation in the franchise application
• Unauthorized transfer of the franchise
• Conduct that poses a health or safety risk to the public
• Use of unapproved suppliers in violation of Item 8 sourcing requirements

Subway has historically been known for relatively aggressive enforcement of its termination provisions. During periods of system contraction, termination enforcement can intensify as the franchisor seeks to close underperforming locations and remove non-compliant operators. Understanding exactly what constitutes a terminable default, and what your cure rights are, is essential before signing the agreement. For a deeper analysis of the contract provisions you should watch for, see our guide on franchise agreement red flags.

What Are the Transfer Restrictions for Subway Franchisees?

Transfer provisions govern your ability to sell the franchise to a new operator. This is how most franchisees exit their investment, so understanding the restrictions is critical for planning your eventual exit strategy.

Subway’s transfer provisions typically include the following requirements:

• Written consent: All transfers require Subway’s prior written consent, which the franchisor can withhold if the buyer does not meet its qualification standards.
• Transfer fee: The franchisee must pay a transfer fee to Subway at the time of transfer.
• Buyer qualifications: The buyer must meet Subway’s financial, operational, and background qualification standards, including completing the required training program.
• Good standing requirement: The selling franchisee must be current on all obligations, with no outstanding defaults or unpaid fees.
• Then-current agreement: The buyer must sign the then-current franchise agreement, not the seller’s original agreement. This means the buyer takes on whatever fee structure and terms are currently in effect.
• Facility compliance: The location may need to meet current design and equipment standards before transfer is approved, potentially requiring the seller or buyer to invest in renovations.

Subway’s Right of First Refusal

Subway typically retains a right of first refusal on franchise transfers. This means that if a franchisee receives a bona fide offer from a third-party buyer, the franchisee must present the terms of that offer to Subway. Subway then has a specified period (typically 30 days) to decide whether to match the offer and acquire the franchise on those same terms.

The right of first refusal has practical implications for franchisees trying to sell. First, it can delay the transfer process because the buyer must wait for Subway to exercise or waive its right. Second, it can chill buyer interest because sophisticated buyers may be reluctant to invest time and resources negotiating a deal that the franchisor can simply match. Third, it gives Subway the option to acquire locations it views as strategically valuable, which may or may not align with the franchisee’s interests.

Post-Termination Non-Compete

Subway’s franchise agreement typically includes a post-termination non-compete provision that restricts the former franchisee from operating a competing business within a specified geographic area for a specified period after the franchise relationship ends. The enforceability of post-termination non-competes varies by state, with some states (notably California) severely limiting or prohibiting them. A franchise attorney in your jurisdiction can advise you on whether and to what extent the non-compete is enforceable.

A Client Scenario: When Renewal Terms Changed the Exit Strategy

A long-term Subway franchisee with two locations contacted our firm approximately 18 months before the franchise agreements were set to expire. The franchisee had operated under older agreements with more favorable royalty terms and wanted to understand the renewal options.

When we reviewed the then-current franchise agreement that would be required at renewal, the financial picture changed dramatically. The royalty increase from the franchisee’s original rate to the current 8% on gross sales would reduce annual net income by approximately $24,000 across the two locations. Combined with increased advertising and technology fee requirements, the total additional annual cost at renewal was approximately $38,000.

Given the franchisee’s age and retirement timeline, renewing for another 20-year term at the higher cost structure did not make financial sense. Instead, we helped the franchisee develop a transfer strategy: sell both locations to a new operator before the agreements expired, while the locations were still operating under the more favorable terms. The sale was completed within nine months, and the franchisee exited the system with proceeds that reflected the business’s value under the existing cost structure.

At Lopes Law LLC, this is why we emphasize the importance of reviewing Item 17 not just at the time of purchase, but throughout the franchise relationship. The renewal and transfer provisions determine your exit options, and planning early gives you more choices. For a broader overview of the financial analysis involved, see our guide to franchise lawyer costs.

How Does Subway Handle Dispute Resolution?

Subway’s franchise agreement typically requires binding arbitration for most disputes between the franchisor and the franchisee. The arbitration provisions govern where, how, and under what rules disputes will be resolved.

Key elements of Subway’s dispute resolution provisions include:

• Mandatory arbitration: Most disputes must be resolved through binding arbitration rather than through the court system. This means you waive the right to a jury trial.
• Arbitration venue: The agreement typically specifies the geographic location for arbitration, which may be in Subway’s preferred jurisdiction rather than the franchisee’s home state. This can create significant logistical and financial burdens for franchisees.
• Class action waiver: The agreement typically prohibits class action claims, meaning each franchisee must pursue their dispute individually rather than joining with other franchisees in a collective action.
• Choice of law: The agreement specifies which state’s law governs the contract, which may be different from the state where the franchisee operates.
• Limitation on damages: The agreement may limit the types of damages the franchisee can recover, potentially excluding consequential damages, lost profits, or punitive damages.

It is important to note that some state franchise relationship laws can override or modify certain arbitration provisions. States with strong franchise protection statutes, including California, Illinois, Minnesota, and others, may render venue selection clauses, choice of law provisions, or class action waivers unenforceable when they conflict with state law. A franchise attorney licensed in your state can advise you on which provisions in the agreement are enforceable in your jurisdiction.

What Should Prospective Subway Franchisees Focus on in Item 17?

When reviewing Subway’s Item 17, prioritize these specific areas:

• Renewal fee amount: Determine the exact cost to renew and factor it into your long-term financial planning.
• Notice deadlines: Identify the exact timeline for providing renewal notice. Missing the deadline could forfeit your renewal rights.
• Facility standards at renewal: Determine what renovations or upgrades may be required as a condition of renewal and estimate those costs now.
• Transfer fee and process timeline: Understand what the transfer will cost and how long the process typically takes from agreement to closing.
• Right of first refusal specifics: Know the exact timeframe Subway has to exercise or waive its right and how this will affect your ability to sell.
• Non-compete scope: Understand the geographic radius and duration of the post-termination non-compete and whether it is enforceable in your state.
• Arbitration venue: Determine where disputes must be arbitrated and factor in the travel and logistics costs of pursuing a claim in that jurisdiction.

At Lopes Law LLC, we review every Item 17 provision in detail during our FDD validation review. Our flat-fee review is $3,000 and covers all 23 items, with particular emphasis on the renewal, termination, and transfer provisions that determine your long-term rights and exit options.

Frequently Asked Questions About Subway FDD Item 17

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Last updated: March 10, 2026