Is Eriks Delicafe obligated to purchase inventory from the franchisee upon termination?
Eriks_Delicafe Franchise · 2024 FDDAnswer from 2024 FDD Document
association with Erik's. Franchisee shall take all action as may be required to cancel all fictitious or assumed name or equivalent registrations relating to Franchisee's use of any Mark.
- (b) Pay Creditors. Franchisee shall immediately pay all creditors of the DeliCafe, including all sums then owing by Franchisee to Erik's or its affiliates.
- Vacate Premise or Lease: Offer to Repurchase. Unless termination results solely from the exercise by Franchisee of Franchisee's option as provided in Section 5.1 hereof, Erik's shall have the option, exercisable by written notice to Franchisee at any time within thirty (30) days from the date of termination hereof, to require that Franchisee assign to Erik's the leasehold interest of Franchisee in the Premises in consideration of Erik's assumption of the obligations thereunder. If Erik's exercises this option, Erik's shall repurchase from Franchisee all furniture, fixtures, furnishings, equipment, signs, decor and inventory owned by Franchisee and used in the operation of the DeliCafe at the lower of their fair market value, or the price paid by Franchisee (less depreciation). Erik's shall in any event, make purchases from Franchisee of inventory and supplies as may be required by applicable law.
- (d) Transfer Telephone Privileges; Remove Sign; Alterations. Franchisee shall relinquish and take all steps necessary to transfer all right, title and interest in all telephone numbers, listings, and advertising privileges concurrent therewith, relating to the Franchisee's DeliCafe to Erik's. Franchisee, in the event Erik's does not exercise its option to require vacation of the Premises (or assignment of the leasehold interest) as provided in subparagraph (c) above, shall also make removals or changes in signs, colors, menu and decor as Erik's shall reasonably request so to effectively distinguish the Premises from their former appearance and from any other franchised DeliCafes and return the Premises to pre-Erik's condition.
- (e) Erik's Right To Purchase the DeliCafe. Upon termination of this Agreement by Erik's for cause or upon expiration of this Agreement (without renewal), Erik's shall have the option, exercisable by giving written notice thereof within sixty (60) days from the date of such expiration or termination, to purchase from Franchisee all the assets of the DeliCafe.
Assets shall include, without limitation, furniture, fixtures, furnishings, equipment, signs, decor, leasehold improvements and the lease for the Premises. Erik's shall have the unrestricted right to assign this option to purchase. In the event Franchisee owns the Premises, Franchisee shall grant to Erik's or its assignee a retail lease, in a form acceptable to Erik's, for a term of ten (10) years. Erik's or its assignee shall be entitled to all customary warranties and representations in connection with its asset purchase, including, without limitation, representations and warranties as to ownership, condition and title to assets, liens and encumbrances on the assets, validity of contracts and agreements, and liabilities inuring to Erik's or affecting the assets, contingent or otherwise.
The purchase price for the assets of the DeliCafe shall be the fair market value, determined in a manner consistent with reasonable depreciation of leasehold improvements owned by Franchisee and the furniture, fixtures, furnishings, equipment, signs, decor and inventory of the DeliCafe, provided that the purchase price shall not contain any factor or increment for any trademark, service mark or other commercial symbol used in connection with the operation of the DeliCafe, and further provided that Erik's may exclude from the assets purchased hereunder any furniture, fixtures, furnishings, equipment, signs, decor and inventory that are not approved as meeting quality standards for DeliCafes. The length of the remaining term of the lease for the Premises of the DeliCafe shall also be considered in determining the fair market value hereunder.
Source: Item 23 — RECEIPTS (FDD pages 38–159)
What This Means (2024 FDD)
According to the 2024 Eriks Delicafe Franchise Disclosure Document, Eriks Delicafe's obligation to purchase inventory from a franchisee upon termination depends on the circumstances of the termination. If the termination does not result from the franchisee exercising their option as provided in Section 5.1, Eriks Delicafe has the option to require the franchisee to assign the leasehold interest in the premises to them. If Eriks Delicafe exercises this option, they are obligated to repurchase the franchisee's furniture, fixtures, furnishings, equipment, signs, decor, and inventory at the lower of their fair market value or the price the franchisee paid, less depreciation.
Regardless of whether Eriks Delicafe exercises the option to assume the lease, Eriks Delicafe is obligated to make purchases from the franchisee of inventory and supplies as may be required by applicable law. This suggests that local or state laws might mandate certain inventory repurchases to protect franchisees.
Eriks Delicafe also has the option to purchase all the assets of the DeliCafe upon termination by Eriks Delicafe for cause or upon expiration of the agreement without renewal. Assets include furniture, fixtures, furnishings, equipment, signs, decor, leasehold improvements, and the lease for the Premises. This option is exercisable by giving written notice within 60 days from the date of termination or expiration. If Eriks Delicafe exercises this option, the purchase price will be paid in cash at the closing, no later than 90 days after the franchisee receives notice of the decision to purchase. The franchisee must deliver clear title to the assets, free of liens and encumbrances, with all sales and transfer taxes paid by the franchisee.