What rights does Cost Cutters Family Hair Salon have after an Event of Default has occurred?
Cost_Cutters_Family_Hair_Salon Franchise · 2024 FDDAnswer from 2024 FDD Document
11.8 DETERMINATION OF FAIR MARKET VALUE. If the FRANCHISEE fails to give COST CUTTERS written notice of the asking price of the Franchise Assets, or if COST CUTTERS and the FRANCHISEE cannot agree on the price of the Franchise Assets, then either party will have the right to demand that the price of the Franchise Assets be determined by arbitration in accordance with the Rules and Regulations of the American Arbitration Association.
The arbitration hearing will be held as soon as possible, but in no event later than seven (7) business days from the date arbitration is demanded by either
party. The Arbitrator will determine the fair market value of the Franchise Assets. The Arbitrator will not consider any value for goodwill associated with the names Cost Cutters® or Cost Cutters Family Hair Salon® or for going concern value in determining the fair market value of the Franchise Assets since the right of purchase granted to COST CUTTERS pursuant to this provision applies only after this Agreement has expired or has been terminated, or the FRANCHISEE has ceased doing business as a developer. If the Arbitrator is unable to determine the fair market value of any of the Franchise Assets, then they will be valued at book value (cost less depreciation). COST CUTTERS will have the right, but not the obligation, to purchase any or all of the Franchise Assets from the FRANCHISEE for cash within fifteen (15) business days after the fair market value of the Franchise Assets has been established by the Arbitrator in writing. Nothing in this Article will prohibit COST CUTTERS from enforcing the terms and conditions of this Agreement, including the covenants not to compete contained in Article 8.
Source: Item 23 — RECEIPT (FDD pages 76–439)
What This Means (2024 FDD)
According to the 2024 Cost Cutters Family Hair Salon Franchise Disclosure Document, if a franchisee fails to provide written notice of the asking price for the franchise assets or if Cost Cutters Family Hair Salon and the franchisee cannot agree on the price, either party can demand arbitration to determine the fair market value. The arbitration hearing must occur within seven business days from the date arbitration is demanded. The arbitrator will not consider goodwill associated with the Cost Cutters Family Hair Salon name or going concern value when determining the fair market value, as the purchase right applies after the agreement expires, is terminated, or the franchisee ceases business.
If the arbitrator cannot determine the fair market value of the franchise assets, they will be valued at book value (cost less depreciation). Cost Cutters Family Hair Salon has the right, but not the obligation, to purchase any or all of the franchise assets for cash within fifteen business days after the fair market value is established in writing by the arbitrator.
Furthermore, nothing prevents Cost Cutters Family Hair Salon from enforcing the terms and conditions of the agreement, including non-compete clauses. This means that even during or after a default, Cost Cutters Family Hair Salon can still pursue legal remedies to protect its interests and enforce the franchisee's obligations under the franchise agreement.