Under what circumstances does City Wide consider a franchise transfer fee to be a contract modification?

According to City Wide's 2025 Franchise Disclosure Document, the company charges transfer fees when ownership transfers for an existing franchisee, and these fees are typically recognized ratably over the remaining franchise term. However, City Wide considers the existing franchise contract terminated if the transfer fees are determined to be a contract modification. In this case, any unrecognized consideration from the original contract is combined with the consideration from the new contract. This combined amount is then allocated over the performance obligations of the new contract.

For a prospective City Wide franchisee, this means that the accounting treatment of transfer fees depends on whether the transfer is deemed a modification of the original franchise agreement. If it is not a modification, the transfer fees are recognized evenly over the remaining life of the franchise agreement. However, if the transfer is considered a modification, the accounting becomes more complex. The remaining value of the old agreement is combined with the new transfer fee, and this total is then recognized over the life of the new agreement.

This distinction is important because it affects how City Wide recognizes revenue and how the transfer impacts the financial statements. The FDD does not specify the exact conditions that would trigger a determination of contract modification. Therefore, a prospective franchisee should seek clarification from City Wide regarding the specific circumstances under which a transfer fee would be considered a contract modification. Understanding these conditions is crucial for both the franchisee and City Wide to accurately account for the transfer from a financial perspective.