N.Y. Comp. Codes R. & Regs. tit. 13, § 200.6 – Impoundment of funds.

(a) If the Department of Law finds that the franchisor has failed to make adequate financial arrangements to fulfill its obligation to provide real estate, improvements, equipment, inventory, training, or other items included in its offering, the department may impose an escrow of up to the full amount of the franchise fees and other funds paid by the franchisee or subfranchisor until the franchisor's obligations are fulfilled.
(b) When an escrow is imposed, the franchisor shall be the holder of the escrow funds. It shall place these funds in an escrow account established in a national bank located in New York or a New York bank or trust company. This account shall contain only escrow funds and shall be separate and apart from the franchisor's other accounts.
(c) All proceeds so deposited shall remain the property of the franchisee and shall not be subject to any liens or charges by the franchisor, or judgments, garnishments or creditor's claims.
(d) The franchisor and the bank or trust company shall, in establishing the franchisor's escrow account, make an agreement which shall authorize the department to inspect the records of the bank or trust company relating to the escrow account and permitting the bank to furnish to the department, at the department's request, a statement of the condition of the escrow account.
(e) When an escrow is imposed, the franchisor shall deliver to each franchisee or subfranchisor a purchase receipt evidencing the receipt of funds from the franchisee on account of the payment of franchise fees, as that term is defined in section 681 of the General Business Law, and stating that the funds are to be held in escrow by the franchisor and deposited in an escrow account, setting forth the name of the bank or trust company in which the account is established, the address of the bank or trust company, the name of the account and the account number. Purchase receipts shall be consecutively numbered and prepared in quadruplicate, the original given to the franchisee or subfranchisor, the first copy to the bank or trust company, together with the payment received, the second copy retained by the franchisor, and the third copy sent to the department.
(f) The department shall authorize the franchisor to release those amounts of the escrowed funds applicable to specified franchisee or subfranchisor upon a showing satisfactory to the department that the franchisor has fulfilled its obligations under the franchise agreement to establish the franchise.
(g) An application for an order of the department authorizing the release of escrowed funds to the franchisor shall be verified and shall contain:
1. (1) a statement of the franchisor that required proceeds from the sale of franchises have been placed with the bank or trust company in accordance with the terms and conditions of the escrow agreement;
2. (2) a franchisee's verified statement of completion of franchisor's obligations for release of funds from escrow;
3. (3) a statement of the bank or trust company signed by an appropriate officer setting forth the aggregate amount of escrow funds placed with the depository, when required by the administrator;
4. (4) the name of each franchisee or subfranchisor and the amount held in escrow for the account of the franchisee or subfranchisor;
5. (5) a showing that the franchisor, with respect to a franchise, the funds for which are sought to be released, has completely performed its obligations, cited by reference to the franchise agreement and its provisions, to provide real estate, improvements, equipment, inventory, training or other items; and
6. (6) other information the department may reasonably require.
(h) If the department finds that any conditions of this agreement have not been satisfied or that any provisions of the New York franchise law or regulations have not been complied with, or the registration of the franchises has been revoked, then the department may withhold such authorization for release of funds by the franchisor and may direct the full return of funds by the franchisor to the franchisees.
1. (1) In lieu of the imposition of an escrow, a franchisor at this option may post a surety bond of a surety company in the amount required by the department as protection of the franchisees requires.
2. (2) The surety company must be authorized to transact business in New York.
3. (3) The department shall take into consideration the amount of the franchise fees and other fees to be charged as well as the number of franchises to be offered, granted or sold in determining the initial amount of the surety bond and will amend the amount as public interest requires, using the same factors.
4. (4) Should the department so determine that the franchisor failed to complete its obligations under the franchise contract to provide real estate, improvements, equipment, inventory, training or other items included in the offering, the surety company shall pay the amount of the bond to the department, as obligee, for the benefit of all franchisees in accordance with their contribution of franchise fees.
(i) Surety bond in lieu of escrow.