McDonald’s FDD Item 17 is arguably the single most consequential section of the entire Franchise Disclosure Document for both prospective and existing McDonald’s franchisees. Item 17 governs four critical areas of the franchise relationship: renewal, termination, transfer, and dispute resolution. These provisions define how long you can keep your franchise, under what circumstances McDonald’s can take it away, what happens when you want to sell, and how disagreements are resolved. At Lopes Law LLC, we consider Item 17 the “exit and survival” section of the FDD, because it controls what happens at every major turning point in a franchisee’s business life.

A McDonald’s franchise term is typically 20 years. That sounds like a long time, but the provisions in Item 17 can reshape that timeline dramatically. A franchisee who does not understand the renewal conditions, termination triggers, transfer restrictions, and dispute resolution mechanisms in Item 17 is operating without a clear picture of the risks they have accepted. This guide breaks down each section of McDonald’s FDD Item 17 in detail, with specific provisions, dollar figures, and practical guidance for franchisees evaluating or currently operating a McDonald’s franchise.

What Are the McDonald’s Franchise Renewal Terms?

McDonald’s franchise agreements run for a 20-year term. At the end of that term, renewal is not automatic. McDonald’s uses what the company calls a “re-granting” process, which is distinct from a simple renewal. The difference matters: a renewal typically means extending the existing agreement, while a re-granting means the franchisee must qualify anew and sign the then-current franchise agreement, which may contain materially different terms, fees, and obligations than the original agreement signed 20 years earlier.

To be considered for re-granting, a McDonald’s franchisee must satisfy several conditions:

• Operational performance standards: The franchisee must have maintained satisfactory performance throughout the prior term, including customer satisfaction scores, speed of service metrics, cleanliness ratings, and compliance with McDonald’s operational protocols. Franchisees with a history of poor inspections or operational deficiencies face a significantly higher risk of non-renewal.
• Financial performance and stability: McDonald’s evaluates the franchisee’s financial health, including their ability to fund required capital expenditures, maintain adequate working capital, and meet all financial obligations to the company. Franchisees with outstanding debts or a history of late royalty payments are at risk.
• Facility remodeling requirements: This is often the most financially impactful condition. McDonald’s requires franchisees to remodel their locations to meet current brand standards as a condition of re-granting. Recent remodel packages have ranged from $750,000 to over $2.2 million per location, depending on the scope. For a multi-unit operator with five locations, the total remodel investment at renewal could exceed $5 million to $10 million.
• Signing the then-current franchise agreement: The renewed franchise operates under the current agreement, not the original one. Over 20 years, franchise agreement terms can change substantially, including royalty rates, advertising fund contributions, technology requirements, and operational mandates.
• Completion of any required training updates: McDonald’s may require the franchisee and key management personnel to complete additional training programs as part of the re-granting process.

At Lopes Law LLC, we advise every McDonald’s franchisee to begin preparing for the re-granting process at least 3 to 5 years before the franchise term expires. This preparation includes building a capital reserve for remodel costs, addressing any outstanding operational deficiencies, and reviewing the then-current franchise agreement terms well in advance of the re-granting deadline. For a deeper discussion of franchise renewal protections, see our guide on franchise renewal rights and what franchisees need to know.

How Can McDonald’s Terminate a Franchise Agreement?

McDonald’s franchise agreement includes an extensive list of termination triggers. Some defaults provide the franchisee with a cure period (typically 30 days) to remedy the problem. Others allow McDonald’s to terminate immediately with no opportunity to cure. Understanding which defaults fall into each category is critical for every McDonald’s operator.

Defaults With a Cure Period

For certain operational and financial defaults, McDonald’s must provide written notice and allow the franchisee a specified period (usually 30 days) to cure the default before termination becomes effective. These typically include:

• Failure to maintain operational standards, such as cleanliness scores below McDonald’s minimum threshold
• Failure to comply with advertising and marketing requirements
• Late payment of royalties, rent, or other financial obligations (when the late payment is not chronic)
• Failure to complete required facility upgrades within the specified timeline
• Non-compliance with technology mandates (such as point-of-sale system updates or digital ordering platform requirements)

Defaults Triggering Immediate Termination

Other defaults give McDonald’s the right to terminate immediately, with no cure period. These are considered material breaches that threaten the integrity of the brand or the health and safety of consumers:

• Health and safety violations: A critical health code violation from a local health department or a food safety incident can trigger immediate termination. Given that McDonald’s serves approximately 69 million customers daily worldwide, food safety is a non-negotiable priority.
• Bankruptcy or insolvency: Filing for bankruptcy protection or becoming insolvent triggers immediate termination rights. This provision exists in virtually all franchise agreements, not just McDonald’s.
• Criminal convictions: A felony conviction or conviction for a crime involving moral turpitude by the franchisee or any owner of the franchise entity can trigger immediate termination.
• Unauthorized transfer: Transferring ownership, control, or operational responsibility of the franchise without McDonald’s prior written approval is an immediate termination event.
• Abandonment: Ceasing to operate the franchise for a period (typically 5 consecutive business days) without McDonald’s consent constitutes abandonment.
• Repeated defaults: Three or more defaults within any 12-month period, even if each individual default was cured within the allowed period, can constitute grounds for termination without further cure opportunity.
• Fraud or material misrepresentation: Any fraud committed by the franchisee in connection with the franchise, including falsification of financial reports or operational records.

The Real Estate Factor in McDonald’s Terminations

One aspect of McDonald’s termination provisions that distinguishes it from most other franchise systems is the real estate structure. McDonald’s typically owns or controls the real estate underlying its franchise locations. The franchisee operates under a separate lease or sublease from McDonald’s. This means that loss of the lease effectively terminates the franchise, because the franchisee cannot operate the McDonald’s restaurant without access to the premises.

This structure gives McDonald’s an additional layer of control that most franchise systems do not have. If the franchise agreement is terminated for any reason, the franchisee simultaneously loses both the franchise rights and the physical location. There is no option to continue operating a different restaurant concept at the same location, because the lease is tied to the franchise relationship.

For more information on franchisee protections during termination, read our detailed guide on franchise termination rights and legal options for franchisees.

What Are McDonald’s Franchise Transfer Restrictions?

Selling or transferring a McDonald’s franchise is one of the most heavily regulated transactions in the franchise industry. McDonald’s FDD Item 17 imposes several layers of restrictions on transfers, each designed to ensure that new operators meet the company’s standards.

McDonald’s Right of First Refusal

Before a franchisee can sell to a third-party buyer, McDonald’s has the right of first refusal. This means the franchisee must present the proposed sale terms to McDonald’s, and McDonald’s has a specified period (typically 30 days) to decide whether to match the offer and purchase the franchise itself. If McDonald’s exercises its right of first refusal, the sale to the third party does not proceed, and McDonald’s acquires the franchise at the same price and terms.

This provision has significant practical implications. A franchisee who has negotiated a premium price with a private buyer may find that McDonald’s exercises its right of first refusal precisely because the deal is attractive. Conversely, if a franchisee is trying to exit a struggling location, McDonald’s is less likely to exercise the right, but the franchisee may struggle to find a buyer who meets McDonald’s qualification standards.

Buyer Qualification Requirements

Any prospective buyer of a McDonald’s franchise must meet the same qualification standards that McDonald’s applies to new franchisees. These requirements include:

• Financial resources: The buyer must demonstrate sufficient liquid capital and net worth to acquire and operate the franchise. McDonald’s has historically required buyers to have a minimum of $500,000 in liquid, non-borrowed personal resources.
• Training completion: The buyer must complete McDonald’s full training program, which typically takes 9 to 18 months. This training requirement can significantly delay the transfer timeline, because the buyer must complete training before assuming operational control.
• Operational experience: McDonald’s prefers buyers with restaurant management or multi-unit business experience, though the training program is designed to prepare operators without prior McDonald’s experience.
• Background checks and interviews: Prospective buyers undergo background checks, financial audits, and multiple interviews with McDonald’s corporate staff.

Transfer Fees and Costs

A McDonald’s franchise transfer involves several costs beyond the purchase price. The buyer will pay a transfer fee to McDonald’s, and the selling franchisee should budget for legal fees, broker commissions (if a franchise broker is involved), and any outstanding obligations that must be settled before the transfer closes. Additionally, the buyer will sign the then-current franchise agreement, which may include different royalty rates, technology requirements, and remodel obligations.

Transfers to Family Members

Transfers to family members are subject to the same approval process and qualification requirements as transfers to third parties. There is no automatic right to pass a McDonald’s franchise to a child, spouse, or other family member. The family member must meet all financial, training, and operational requirements independently. At Lopes Law LLC, we frequently help families plan franchise transitions, and we always advise beginning the qualification process for the next generation at least 2 to 3 years before the intended transfer date.

For a comprehensive overview of franchise transfer strategies. see our guide on how to sell or transfer a franchise.

A Client Scenario: The Renewal Remodel Surprise

A multi-unit McDonald’s operator contacted our firm approximately 18 months before the end of his first 20-year term. He operated three locations in the mid-Atlantic region and assumed that renewal would be straightforward, since all three locations were profitable and had consistent operational scores above the system average.

When McDonald’s initiated the re-granting process, the franchisee received the remodel estimates for all three locations. The total came to approximately $4.8 million: $1.4 million for the oldest location (which required a near-complete rebuild), $1.8 million for the second (a major interior renovation plus drive-thru modernization), and $1.6 million for the third (a comprehensive technology and kitchen equipment upgrade).

The franchisee had approximately $1.2 million in available capital. He had not planned for remodel costs of this magnitude, and financing the remaining $3.6 million would require significant debt at prevailing commercial lending rates. After reviewing the re-granting terms, we helped him evaluate three options: proceed with all three remodels using a combination of SBA lending and equipment financing, sell one location to fund the remodels at the other two, or negotiate a phased remodel schedule with McDonald’s. Ultimately, the franchisee sold one location to an existing McDonald’s operator (after McDonald’s declined its right of first refusal) and used the proceeds to fund remodels at the remaining two locations. The re-granting was approved for both, and the franchisee entered his second 20-year term in a stronger financial position.

This scenario illustrates why understanding Item 17’s renewal provisions years in advance is essential. A franchisee who waits until the re-granting process begins to evaluate remodel costs may find themselves with limited options and significant financial pressure.

How Does McDonald’s Handle Franchise Disputes?

McDonald’s FDD Item 17 includes detailed dispute resolution provisions that govern how disagreements between the franchisee and McDonald’s are handled. These provisions significantly limit a franchisee’s legal options compared to what would be available under general commercial litigation.

Mandatory Mediation and Arbitration

The McDonald’s franchise agreement requires that most disputes be resolved through mandatory mediation followed by binding arbitration, rather than through litigation in court. This means that a franchisee who has a dispute with McDonald’s over termination, renewal, operational requirements, or financial obligations cannot simply file a lawsuit. Instead, the franchisee must first attempt to resolve the dispute through mediation with a neutral mediator. If mediation fails, the dispute proceeds to binding arbitration, where an arbitrator (not a judge or jury) renders a final decision.

Choice of Law and Venue

McDonald’s franchise agreement typically specifies Illinois law as the governing law and Illinois as the venue for any dispute resolution proceedings. This means that a franchisee operating in Florida, Texas, or California must travel to Illinois for arbitration, apply Illinois law to the dispute, and retain counsel who is licensed and experienced in Illinois franchise law. This venue provision creates a significant logistical and financial burden for franchisees located outside the Chicago metropolitan area.

Some state franchise laws (including those in California, Illinois, Maryland, Minnesota, and several others) include anti-waiver provisions that may override the franchise agreement’s choice of law or venue clauses. Whether these state law protections apply depends on the specific state, the nature of the dispute, and the procedural posture of the case. At Lopes Law LLC, we evaluate these state-specific protections for every client.

Class Action and Jury Trial Waivers

The McDonald’s franchise agreement includes both a class action waiver and a jury trial waiver. The class action waiver prohibits franchisees from joining together as a group to pursue claims against McDonald’s. Each franchisee must pursue their own claims individually. The jury trial waiver means that if a dispute does reach court (rather than arbitration), the franchisee has waived the right to have the case decided by a jury.

These waivers have been the subject of significant legal debate in franchise law. The Federal Arbitration Act generally supports the enforceability of arbitration clauses and class action waivers, and the U.S. Supreme Court has upheld similar provisions in other franchise contexts. However, some state courts have found these waivers unenforceable in specific circumstances, particularly when the state’s franchise statute includes express anti-waiver provisions.

Statute of Limitations Modifications

The McDonald’s franchise agreement may also modify the statute of limitations for certain claims, shortening the time period within which a franchisee must bring a dispute. Under general state law, a franchisee might have 3 to 6 years to file a breach of contract claim, depending on the state. The franchise agreement may reduce this to 1 or 2 years. Franchisees who delay in pursuing legitimate claims risk having those claims time-barred by the contractual limitations period.

For a broader overview of how franchise disputes are resolved across the industry, see our guide on franchise dispute resolution options for franchisees.

What Should Prospective McDonald’s Franchisees Focus On in Item 17?

If you are evaluating a McDonald’s franchise, the Item 17 provisions should be among the first sections you review with your franchise attorney. Here are the specific areas that require the closest attention:

1. Calculate the total renewal cost. Estimate the remodel cost for each location you plan to operate over a 20-year term. Factor these costs into your long-term financial projections from day one, not year 18.
2. Understand the re-granting discretion. Know that renewal is not guaranteed. Build and maintain a strong operational track record throughout the term to maximize your chances of re-granting.
3. Map every termination trigger. Identify which defaults allow a cure period and which trigger immediate termination. Build operational safeguards around the immediate termination triggers, particularly health and safety compliance.
4. Plan your exit strategy before you enter. Know the transfer restrictions, right of first refusal, and buyer qualification requirements before you sign. If your exit plan includes selling to a family member, begin the qualification process early.
5. Evaluate the dispute resolution provisions in your state context. Determine whether your state’s franchise laws provide any protections that may override the franchise agreement’s arbitration, venue, or waiver provisions.

At Lopes Law LLC, our FDD validation review covers every provision in Item 17 and provides a written analysis tailored to your specific situation, state of operation, and investment timeline. We have reviewed hundreds of FDDs across every major franchise system, and we can identify how McDonald’s Item 17 provisions compare to industry norms and best practices.

Frequently Asked Questions About McDonald’s FDD Item 17

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For related guidance, read our posts on franchise renewal rights, franchise termination rights, how to sell or transfer a franchise, and franchise dispute resolution options.