What is the impact of the termination of the Carls Jr. agreement on the purchase price of the assets?
Carls_Jr Franchise · 2025 FDDAnswer from 2025 FDD Document
- 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
Source: Item 22 — CONTRACTS (FDD pages 75–76)
What This Means (2025 FDD)
According to the 2025 Carls Jr. Franchise Disclosure Document, the termination of the franchise agreement impacts the purchase price of the assets if Carls Jr. exercises its option to purchase the assets of the franchised restaurant. The purchase price will be the fair market value of the assets, but this valuation must consider the fact that the franchise agreement is terminated. This means the purchase price calculation cannot include any additional value associated with the Carls Jr. trademark, service mark, or the goodwill of the restaurant.
Specifically, the fair market value determination should account for reasonable depreciation and the condition of the assets as of the purchase date. This ensures that the franchisee is compensated fairly for the current state of the equipment, leasehold improvements, and inventory. However, the exclusion of trademark and goodwill value means the franchisee will not receive compensation for the brand recognition or customer base that Carls Jr. brings to the business.
This clause protects Carls Jr. from paying a premium for its own brand equity when repurchasing assets from a franchisee upon termination. For a prospective franchisee, this highlights the importance of understanding the asset valuation process in the event of a termination, as it could significantly affect the financial return on their investment. It is essential to maintain detailed records of asset condition and depreciation to ensure a fair valuation should Carls Jr. exercise its purchase option.