Under what conditions can CJR exercise its option to purchase assets from a Carls franchisee after the termination or expiration of the Franchise Agreement?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
make such alterations and modifications to the Franchised Location as may be necessary to clearly distinguish to the public the Franchised Location from its former appearance and also make those specific additional changes as CJR may request for that purpose. If Franchisee fails to promptly make these alterations and modifications, CJR shall have the right (at Franchisee's expense, to be paid upon Franchisee's receipt of an invoice from CJR) to do so without being guilty of trespass or other tort.
- G. Franchisee shall furnish CJR, within 30 days after the effective date of termination or expiration, evidence (certified to be true, complete, accurate and correct by an authorized officer of Franchisee) satisfactory to CJR of Franchisee's compliance with Sections 22.A. through 22.F.
- H. Franchisee shall not, except with respect to a restaurant franchised by CJR or its affiliates which is then open and operating pursuant to an effective franchise agreement or a restaurant franchised by CJR or its affiliates which is under construction pursuant to a fully-signed franchise agreement: (1) operate or do business under any name or in any manner that might tend to give the public the impression that Franchisee is connected in any way with CJR or its affiliates or has any right to use the System or the Proprietary Marks; (2) make, use or avail itself of any of the materials or information furnished or disclosed by CJR or its affiliates under this Agreement or disclose or reveal any such materials or information 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.
Source: Item 22 — CONTRACTS (FDD page 80)
What This Means (2024 FDD)
According to Carls's 2024 Franchise Disclosure Document, CJR (Carls Jr. Restaurants) has the option to purchase some or all of the assets used in the franchised restaurant upon the expiration or termination of the Franchise Agreement for any reason. These assets include leasehold improvements, equipment, vehicles, furnishings, fixtures, signs, inventory (non-perishable products, materials, and supplies), and the real estate or lease for the franchised location.
CJR can exercise this option by providing written notice to the franchisee anytime following the expiration or termination of the agreement, up to 30 days after the later of the effective date of termination or expiration, or the date the franchisee ceases to operate the franchised restaurant. This means a franchisee needs to be prepared for the possibility of Carls purchasing the restaurant's assets even after the franchise agreement ends.
The purchase price for the assets will be their fair market value at the time of purchase, accounting for reasonable depreciation and condition. However, the purchase price will also consider the termination of the agreement, and it will not include any value for trademarks or goodwill associated with the Carls Jr. brand. If Carls and the franchisee cannot agree on the fair market value within 30 days of notice, each party will select a certified appraiser to determine the value.
If the two appraisals differ by more than 10%, a third appraiser will be selected, and the average of the appraisals will determine the purchase price. Carls has the right to exclude any assets that do not meet the current standards for a Carls Jr. restaurant or for which the franchisee cannot provide a satisfactory bill of sale. Carls must notify the franchisee in writing within 10 days after the purchase price is determined if it will exercise its option to purchase the assets. The closing must occur no later than 60 days after Carls's purchase notice, with the purchase price paid in cash or cash equivalents.