What Are Pending Units
Pending units are franchise locations that have been sold to franchisees but have not yet opened for business. The franchisee has signed the franchise agreement and paid the initial franchise fee, but the unit remains in pre-launch phase. This distinction matters because pending units represent committed capital and contractual obligations that differ significantly from open units already generating revenue.
Why Pending Units Matter
When evaluating a franchise system, pending units reveal the pipeline of future competition in your territory and the franchisor's sales momentum. A high ratio of pending to open units suggests aggressive growth, which can dilute your market share and territorial advantages. The FDD Item 19 table breaks down open units, closed units, and transfers, but pending units often require deeper questioning because they're not always clearly itemized.
Pending units directly affect your renewal and expansion prospects. If you're considering a territory, knowing how many pending units exist within that area tells you whether your territory rights will face pressure from new franchisees in the same market. Some franchise agreements include language that limits new unit placements based on density thresholds. Without clarity on pending units, you may overestimate your protected territory.
Franchisor obligations also shift based on pending unit activity. A franchisor managing high pending unit volume may have stretched resources for training, support, and supply chain logistics. Payment delays, inconsistent marketing support, or reduced field support can occur when franchisors absorb too many incoming franchisees at once.
Pending Units in Due Diligence
During your FDD review, Item 19 provides historical unit counts for the past three years. Request a supplemental document showing pending unit counts as of the FDD issuance date and the most recent update. The franchisor must disclose this if asked directly, though many franchisors don't volunteer the information.
Key specifics to clarify:
- How many units were pending as of the FDD date versus today. If the number increased significantly, the system is accelerating growth.
- What percentage of pending units are in your target territory or region. This directly impacts your competitive landscape.
- The average time pending units remain in that status before opening. A pending unit that sits dormant for 18 months signals either franchisee capital constraints or franchisor support gaps.
- Whether pending units are factored into the development schedule outlined in Item 23 of the FDD. Some franchisors promise development timelines but underestimate how long pending franchisees take to launch.
- Renewal term treatment: whether existing franchisees get right of first refusal to convert pending units in their territory into additional locations.
What to Ask the Franchisor
- What is the current pending unit count, and how does it compare to 12 months ago?
- Of the pending units, how many have completed buildout and are scheduled to open within the next 90 days?
- Are there pending units in my proposed territory? If so, how will my territory rights be adjusted if they open before my unit launches?
- If a pending unit fails to open within 24 months, does the franchise agreement include termination provisions or penalty clauses?
- What support does the franchisor provide to accelerate pending unit openings, and how is that resourced given current staffing levels?
Common Questions
- Can a pending unit be cancelled or transferred? Yes. If a franchisee cannot secure financing or fails to meet buildout requirements, the agreement may be terminated. Some franchisees sell their rights to a new buyer, effectively transferring the pending unit. Ask the franchisor what percentage of pending units typically convert to open units versus termination.
- Does the franchisor collect the franchise fee before or after the pending period ends? Nearly all systems collect the initial franchise fee upfront, before the franchisee opens. This fee is non-refundable even if the pending unit never launches. This is why reviewing pending unit timelines is critical; a long pending period means the franchisor has already received revenue from franchisees who may never become operational.
- How does a high number of pending units affect my royalty and marketing fund contributions? It doesn't affect your payments directly, but it may reflect where the franchisor's attention and resources are focused. If pending units are prioritized over existing franchisee support, service quality can suffer.
Related Concepts
Understanding pending units works best when combined with related terms:
- Open Units - Already operating and generating sales data
- Development Schedule - The contractual timeline for pending unit launches