What assets does CJR have the option to purchase from a Carls franchisee upon termination or expiration of the Franchise Agreement?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
- A. Upon the expiration or termination of this Agreement for any reason, CJR will have the option to purchase from Franchisee some or all of the assets used in the Franchised Restaurant ("Assets").
CJR may exercise its option by giving written notice to Franchisee at any time following expiration or termination up until 30 days after the later of: (1) the effective date of termination or expiration; or (2) the date Franchisee ceases to operate the Franchised Restaurant.
As used in this Section 23, "Assets" shall mean and include, without limitation, leasehold improvements, equipment, vehicles, furnishings, fixtures, signs and inventory (non-perishable products, materials and supplies) used in the Franchised Restaurant, and the real estate fee simple or the lease or sublease for the Franchised Location.
CJR shall be entitled to the entry of interlocutory and permanent orders of specific performance by a court of competent jurisdiction if Franchisee fails or refuses to timely meet its obligations under this Section 23.
- B.
CJR shall have the unrestricted right to assign this option to purchase the Assets.
CJR or its assignee shall be entitled to all customary representations and warranties that the Assets are free and clear (or, if not, accurate and complete disclosure) as to: (1) ownership, condition and title; (2) liens and encumbrances; (3) environmental and hazardous substances; and (4) validity of contracts and liabilities inuring to CJR or affecting the Assets, whether contingent or otherwise.
- C. The purchase price for the Assets ("Purchase Price") shall be their fair market value, (or, for leased assets, the fair market value of Franchisee's lease) determined as of the effective date of purchase in a manner that accounts for reasonable depreciation and condition of the Assets; provided, however, that the Purchase Price shall take into account the termination of this Agreement.
Source: Item 22 — CONTRACTS (FDD page 80)
What This Means (2024 FDD)
According to Carls's 2024 Franchise Disclosure Document, upon the expiration or termination of the Franchise Agreement, CJR, which is the parent company, has the option to purchase some or all of the assets used in the franchised restaurant from the franchisee. This includes a broad range of items that are essential for the operation of the restaurant.
Specifically, the assets CJR may purchase include leasehold improvements, equipment, vehicles, furnishings, fixtures, signs, and inventory, which is defined as non-perishable products, materials, and supplies used in the restaurant. Furthermore, the option extends to the real estate, either the fee simple (outright ownership) or the lease or sublease for the franchised location. This provision ensures that Carls has the ability to maintain control over the restaurant location and its operational assets, facilitating a smooth transition should the franchise agreement end.
Carls can exercise this purchase option by providing written notice to the franchisee within 30 days after the later of either the effective date of the termination or expiration, or the date the franchisee ceases to operate the restaurant. The purchase price for these assets will be their fair market value at the time of purchase, accounting for reasonable depreciation and the condition of the assets, but excluding any value associated with the Carls trademark or the restaurant's goodwill. This valuation process aims to provide a fair price, although it also stipulates that the termination of the agreement itself should be considered in determining the price.