How is the purchase price determined for the assets CJR purchases from a Carls franchisee upon termination or expiration of the Franchise Agreement?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
nformation or any portion thereof to anyone else; or (3) assist anyone not licensed by CJR or its affiliates to construct or equip a foodservice outlet substantially similar to a Carl's Jr. Restaurant.
23. OPTION TO PURCHASE
- 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. Further, the Purchase Price for the Assets shall not contain any factor or increment for any trademark, service mark or other commercial symbol used in connection with the operation of the Franchised Restaurant nor any goodwill or "going concern" value for the Franchised Restaurant. CJR may exclude from the Assets purchased in accordance with this Section any equipment, vehicles, furnishings, fixtures, signs, and inventory that are not approved as meeting then-current standards for a Carl's Jr. Restaurant or for which Franchisee cannot deliver a Bill of Sale in a form satisfactory to CJR.
Source: Item 22 — CONTRACTS (FDD page 80)
What This Means (2024 FDD)
According to Carls's 2024 Franchise Disclosure Document, if CJR (Carls Jr. Restaurants LLC) exercises its option to purchase assets from a franchisee upon termination or expiration of the franchise agreement, the purchase price will be the fair market value of the assets. This valuation accounts for reasonable depreciation and the condition of the assets as of the purchase date, while also considering the impact of the franchise agreement's termination. The assets include leasehold improvements, equipment, vehicles, furnishings, fixtures, signs, inventory, and the real estate or lease for the location.
Specifically, the purchase price will not include any value associated with Carls's trademarks, service marks, or the goodwill of the restaurant. CJR can also exclude any assets that don't meet the current Carls Jr. standards or for which the franchisee cannot provide a satisfactory bill of sale. If Carls and the franchisee can't agree on the fair market value within 30 days of Carls's notice to purchase, each party will select a professionally certified appraiser to determine the value.
If the two appraisals differ by more than 10%, a third appraiser will be selected by the first two, and the average of all appraisals will determine the final purchase price. Both Carls and the franchisee will equally bear the costs of the appraisers. After the purchase price is determined, Carls has 10 days to issue a Purchase Notice, and the closing must occur within 60 days of this notice, with the payment made in cash or cash equivalents.
During a 30-day due diligence period after the Purchase Notice, Carls can investigate the assets' ownership, condition, liens, environmental issues, and contract validity. Carls also has the right to offset the purchase price by any amounts the franchisee owes to Carls or any encumbrances on the assets. This detailed process ensures a structured approach to determining the asset purchase price, with mechanisms in place to resolve valuation disagreements and protect Carls's interests.