Under what circumstances is it unlawful for Fat Shack to repurchase a franchisee's business during the term of the franchise agreement?
Fat_Shack Franchise · 2025 FDDAnswer from 2025 FDD Document
19.6. Right to Purchase
Except in the case of the grant of successor franchise rights under Article 18, upon termination or expiration of this Agreement for any reason, FSI shall have the option to purchase the FAT SHACK Restaurant, or a portion of the assets of the FAT SHACK Restaurant, which may include, at FSI's option, all of Franchisee's interest, leasehold or otherwise, in and to the real estate upon which the FAT SHACK Restaurant is located, and all buildings and other improvements related thereto. The purchase price for the assets to be transferred will be the fair market value of the assets, excluding any good will associated with the Marks, as mutually determined by FSI and Franchisee, or if they are unable to mutually agree on the purchase price, by FSI and Franchisee each choosing one independent appraiser who, in turn, choose a third independent appraiser, with the third appraiser's determination being binding upon the parties. The purchase price for the assets will be adjusted by setting off any amount then owing by Franchisee to FSI, including any amounts paid by FSI to cure Franchisee's defaults with third parties such as landlords (the decision to pay such cure amounts to be in the sole and absolute discretion of FSI). FSI and Franchisee shall each pay the fees and expenses of their chosen appraisers and they shall evenly split the fees and expenses of the third appraiser. The following additional terms shall apply to FSI's exercise of this option:
- a.
FSI's option shall be exercisable by providing Franchisee with written notice of its intention to exercise the option no later than the effective date of termination, in the case of termination (unless Franchisee terminates without notice or FSI terminates for cause, in which case FSI shall have 30 days after receipt of actual notice of the termination or such additional time as is reasonably necessary given the circumstances), or at least 30 days prior to the expiration of the term of the franchise, in circumstances where no successor franchise is granted;
- b.
Source: Item 23 — Receipts (FDD pages 53–223)
What This Means (2025 FDD)
Based on the 2025 Fat Shack Franchise Disclosure Document, Fat Shack has the option to purchase the franchise under certain conditions, primarily at the end of the franchise agreement term. Specifically, upon termination or expiration of the agreement for any reason (excluding the grant of successor franchise rights), Fat Shack has the option to purchase the Fat Shack Restaurant. This includes the assets of the restaurant, and potentially the franchisee's interest in the real estate where the restaurant is located. The purchase price will be the fair market value of the assets, excluding any goodwill associated with the Fat Shack marks.
The determination of fair market value involves mutual agreement between Fat Shack and the franchisee. If they cannot agree, each party chooses an independent appraiser, and those appraisers then select a third independent appraiser whose determination is binding. The purchase price can be adjusted to account for any amounts the franchisee owes to Fat Shack, including amounts Fat Shack paid to cure the franchisee's defaults with third parties like landlords. Fat Shack's decision to cover these defaults is at its sole discretion.
Fat Shack must provide written notice to the franchisee of its intent to exercise this purchase option. The timing of this notice depends on the circumstances of the termination. In the case of termination, notice must be given no later than the effective date of termination, unless the franchisee terminates without notice or Fat Shack terminates for cause, in which case Fat Shack has 30 days after receiving actual notice of the termination. If the agreement expires and no successor franchise is granted, Fat Shack must provide notice at least 30 days before the expiration of the franchise term. The FDD does not specify circumstances under which it would be unlawful for Fat Shack to repurchase the franchise.