How is the cost of the appraisal shared between the franchisor and franchisee for Afuri Ramen Dumpling?
Afuri_Ramen_Dumpling Franchise · 2024 FDDAnswer from 2024 FDD Document
7.6.1 This Section 7.6 will apply to any other provisions of this Agreement that require determination of value by appraisal. The fair value of the relevant asset(s) will be determined by a single appraiser selected by you from a list of two appraisers provided by us. Franchisor and Franchisee will equally share the cost of the appraisal. The parties may then present evidence of the value of the relevant asset(s). For purposes of Section 4.2 (entitled "Real Property Security Assignments") and Section 6.5.6(d) (our right to acquire your franchise upon termination or expiration), the appraiser must exclude from its decision any amount or factor for the "goodwill" or "going concern" value. For purposes of Section 7.3.3
Source: Item 23 — Receipts (FDD pages 50–189)
What This Means (2024 FDD)
According to Afuri Ramen Dumpling's 2024 Franchise Disclosure Document, when an appraisal is required to determine the value of assets, the cost is equally shared between the franchisor and the franchisee. Specifically, the franchisee selects a single appraiser from a list of two appraisers provided by Afuri Ramen Dumpling. This appraisal process is relevant in situations outlined in the franchise agreement where valuation is necessary, such as real property security assignments or the franchisor's right to acquire the franchise upon termination, expiration, death, or disability of the franchisee.
This cost-sharing arrangement is a significant financial consideration for prospective Afuri Ramen Dumpling franchisees. By equally splitting the appraisal expenses, the financial burden is lessened for both parties. This arrangement ensures that neither party is disproportionately affected by the cost of determining fair value, which can be particularly important in scenarios involving the transfer of ownership or asset valuation.
However, the FDD stipulates that for specific situations like real property security assignments or when Afuri Ramen Dumpling exercises its right to acquire the franchise upon termination or expiration, the appraiser must exclude any amount or factor for the "goodwill" or "going concern" value from their decision. Conversely, when Afuri Ramen Dumpling acquires the franchise due to the franchisee's death or disability, the appraiser may include these factors. This distinction highlights the importance of understanding the specific circumstances under which an appraisal is conducted, as it can significantly impact the valuation and, consequently, the financial outcome for both parties.
In summary, the cost-sharing arrangement for appraisals offers a balanced approach to valuation expenses. However, franchisees should pay close attention to the conditions under which appraisals are conducted, as the inclusion or exclusion of goodwill and going concern value can substantially affect the final valuation and financial implications.