Under what conditions related to termination or expiration will Bonchon purchase a franchisee's inventory and supplies, and how is the purchase price determined?
Bonchon Franchise · 2025 FDDAnswer from 2025 FDD Document
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The expiration or termination of this Agreement will be without prejudice to our rights against you, and will not relieve you of any of your obligations to us at the time of expiration or termination, or terminate your obligations which by their nature survive the expiration or termination of this Agreement.
19. OUR OPTION UPON TERMINATION OR EXPIRATION
19.01 Option to Purchase Your Franchised Business's Assets
- A. Upon the termination or expiration of this Agreement for any reason, we, any of our affiliates, and/or any nominee or designee we name are hereby granted an option, exercisable within 30 days after the termination becomes effective, to purchase as soon as practicable thereafter (including any period necessary for the obtaining of governmental approvals and consents of the concerned lessor[s]) all of your operating assets relating to the franchised Business. We may exclude from the assets we elect to purchase, cash or its equivalent and any leasehold improvements, equipment, fixtures, furnishings, signs, materials and supplies that are not necessary or appropriate (in function or quality) to the Restaurant's operation or that we have not approved as meeting the System standards, and the purchase price will reflect such exclusions. The date on which such purchase is closed will be referred to as the "closing date". The following terms and conditions will apply to the option granted by this Article 19:
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- All saleable or usable inventory will be purchased at your original cost, less the cost of shipping such inventory to us and less a 25% restocking fee. As used in this Agreement, the term "saleable or usable" is defined to mean all items of merchandise which have been paid for by you, belong to you and are in a condition proper for current use or sale, specifically excluding items which require reconditioning or reworking; items which are not useable or saleable through normal distribution channels; items which are in excess of normal requirements for a three month period; items which are out of code, damaged and/or deteriorated; and, consigned merchandise.
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- All land, facilities and vehicles owned by you (or any affiliate) and utilized by the franchised Business will be purchased for an amount equal to their appraised value as determined by an appraiser we select and you and we share the expense of. If you own the Bonchon Restaurant Location, we may instead of purchasing the Restaurant Location require you to execute and deliver to us or our designee a lease for the Restaurant Location on commercially reasonable terms. If the parties cannot agree on such terms within a reasonable time, we will designate an independent appraiser. The appraiser's determination will be binding, and you must execute and deliver to us a lease for the Restaurant Location on the terms determined by the appraiser to be commercially reasonable. We and you will each pay 50% of the fee charged by the independent appraiser. Upon your execution of the lease for the Restaurant Location,
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- you agree to vacate the Restaurant Location promptly and completely, rendering all necessary assistance to us to enable us to take prompt possession.
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- All leasehold improvements, furniture, fixtures, supplies, equipment and trade dress elements will be purchased for an amount equal to their depreciated book value.
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Source: Item 23 — RECEIPTS (FDD pages 92–536)
What This Means (2025 FDD)
According to Bonchon's 2025 Franchise Disclosure Document, upon termination or expiration of the franchise agreement, Bonchon has the option to purchase a franchisee's assets. This option is exercisable within 30 days after the termination becomes effective. Bonchon can choose to purchase all operating assets related to the franchised business, but may exclude cash, equivalents, leasehold improvements, and any items that don't meet system standards or are unnecessary for the restaurant's operation.
For inventory, Bonchon will purchase 'saleable or usable' inventory at the franchisee's original cost, less the cost of shipping the inventory to Bonchon and a 25% restocking fee. The definition of 'saleable or usable' specifically excludes items needing reconditioning, those not saleable through normal channels, excess inventory for a three-month period, out-of-code or damaged items, and consigned merchandise. Land, facilities, and vehicles will be purchased at appraised value, with the cost of the appraiser split equally between Bonchon and the franchisee. Bonchon may also require the franchisee to execute a lease for the restaurant location on commercially reasonable terms instead of purchasing the location.
Bonchon also has the option to purchase any or all of the franchisee's personal property, fixtures, equipment, inventory, and supplies within 30 days after termination or expiration of the agreement. The purchase price will be the fair market value, defined as the lesser of depreciated book value or actual fair market value. If Bonchon and the franchisee can't agree on a fair market value, an independent appraiser will be designated, with the cost split equally. Bonchon can offset any amounts owed by the franchisee under the agreement, including appraisal costs, against payments for the assets. This means that franchisees need to be aware that the final amount they receive for their assets could be reduced by any outstanding debts to Bonchon.
These stipulations regarding termination and purchase of assets are fairly standard in franchising. However, the specific deductions and conditions, such as the 25% restocking fee and the criteria for 'saleable or usable' inventory, are important for a prospective Bonchon franchisee to consider. Understanding these terms can help a franchisee plan for the potential financial implications of a non-renewal or termination scenario.