How does Engel & Volkers account for pre-opening activities that are highly interrelated and interdependent to the access of the Company's intellectual property?
Engel_Volkers Franchise · 2025 FDDAnswer from 2025 FDD Document
All other pre-opening activities have been determined to be highly interrelated and interdependent to the access of the Company's intellectual property and, therefore, are accounted for as a single performance obligation, which is satisfied by granting certain rights to access the Company's intellectual property over the term of each franchise agreement.
The Company estimates the stand-alone selling price of training and fit-out services that are not brand specific using a cost plus mark-up approach. The Company first allocates the initial franchise fees and the fixed consideration under the franchise agreement to the stand-alone selling price of the training and fit-out services that are not brand specific and the residual, if any, to the right to access the Company's intellectual property. Consideration allocated to training and fit-out services that are not brand specific is recognized ratably as the services are rendered.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 88)
What This Means (2025 FDD)
According to Engel & Volkers' 2025 Franchise Disclosure Document, the company treats pre-opening activities that are highly interrelated and interdependent to the access of its intellectual property as a single performance obligation. This performance obligation is satisfied by granting rights to access Engel & Volkers' intellectual property over the term of each franchise agreement.
However, Engel & Volkers does distinguish certain activities. Specifically, architectural shop-fitting services for franchisees that are not brand specific, such as design-related work to "fit-out" the shop, are considered a separate performance obligation. This is because such services allow the space to be converted to any other real estate brokerage and are not highly interrelated or interdependent to the access of Engel & Volkers' intellectual property.
Engel & Volkers estimates the stand-alone selling price of training and fit-out services that are not brand specific using a cost-plus mark-up approach. The company allocates the initial franchise fees and the fixed consideration under the franchise agreement to the stand-alone selling price of the training and fit-out services that are not brand specific. Any residual amount is then allocated to the right to access the company’s intellectual property. Consideration allocated to training and fit-out services that are not brand specific is recognized ratably as the services are rendered.