What method was used to value the reacquired rights in the Christian Brothers Automotive franchise acquisition?
Christian_Brothers_Automotive Franchise · 2025 FDDAnswer from 2025 FDD Document
arbitrator is hereby
instructed to select an appraiser that the arbitrator determines has experience in
establishing values for business of the nature of the Franchised Business or of
similar businesses.
(b) Termination Due to Any Other Breach. In the event Franchisor terminates this
Agreement for any reason other than a reason specified in subsection (a) above or
Section 13.05 ("Death of Principal Operator"), then within sixty (60) days after
termination, Franchisor may purchase from Franchisee any or all of the furnishings,
equipment, vehicles, signs, fixtures, supplies, inventory or improvements of
Franchisee related to the operation of the Franchised Business (the "Assets"), at the
lesser of Franchisee's cost or fair market value. The cost for the Assets shall be
determined based upon a five (5) year straight-line depreciation of original costs.
For Assets that are five (5) or more years old, the parties agree that fair market
Franchise Agreement (Ver 04-14-2025)
Franchisee: ___________
Franchisor: Christian Brothers Automotive Corporation
value shall be deemed to be ten percent (10%) of the Asset's original cost. If Franchisor elects to exercise the option herein provided, it shall have the right to
set off all amounts due from Franchisee as well as any negative cash position
existing as of the date of purchase.
Source: Item 23 — RECEIPTS (FDD pages 76–372)
What This Means (2025 FDD)
The 2025 Franchise Disclosure Document for Christian Brothers Automotive specifies the valuation methods used when the franchisor reacquires a franchise. If Christian Brothers Automotive terminates the Franchise Agreement due to a franchisee breach not related to the death of the principal operator, the franchisor has the option to purchase the franchisee's assets. These assets include furnishings, equipment, vehicles, signs, fixtures, supplies, inventory, or improvements related to the operation of the franchised business. The purchase price for these assets will be the lesser of the franchisee's cost or the fair market value.
The cost of the assets is determined using a five-year straight-line depreciation method from the original cost. For assets that are five or more years old, their fair market value is deemed to be ten percent of the original cost. If the parties cannot agree on the fair market value within fifteen days after the agreement's expiration, an independent appraiser will be appointed. This appraiser, selected either jointly by the franchisor and franchisee or by an arbitrator, will determine the fair market value based on the business's value as a going concern. The arbitrator must choose an appraiser with experience in valuing businesses similar to a Christian Brothers Automotive franchise.
This valuation process ensures a structured approach to determining the purchase price of assets in the event of franchise termination and repurchase by Christian Brothers Automotive. It provides clarity and a mechanism for resolving disputes through an independent appraisal, which is a fairly standard practice in franchising to ensure fair market value is assessed.