If a Kidokinetics franchisee is prohibited from operating a similar business after the franchise expires, is Kidokinetics required to compensate them for inventory?
Kidokinetics Franchise · 2024 FDDAnswer from 2024 FDD Document
Each of the following provisions is void and unenforceable if contained in any documents relating to a franchise:
- (d) A provision that permits us to refuse to renew your Franchise without fairly compensating you by repurchase or other means for the fair market value at the time of expiration of your inventory, supplies, equipment, fixtures, and furnishings. Personalized materials which have no value to us and inventory, supplies, equipment, fixtures, and furnishings not reasonably required in the conduct of the Franchise business are not subject to compensation. This subsection applies only if: (i) the term of the Franchise is less than five years; and (ii) you are prohibited by the Franchise Agreement or other agreement from continuing to conduct substantially the same business under another trademark, service mark, trade name, logotype, advertising, or other commercial symbol in the same area subsequent to the expiration of the Franchise or you do not receive at least six months' advance notice of our intent not to renew the Franchise.
Source: Item 23 — RECEIPT (FDD pages 59–205)
What This Means (2024 FDD)
According to the 2024 Kidokinetics Franchise Disclosure Document, Michigan franchisees may be entitled to compensation for certain items if they are prevented from operating a similar business after the franchise term. Specifically, if the franchise term is less than five years, and the franchisee is prohibited from conducting a similar business in the same area under a different brand after the franchise expires, or if they do not receive at least six months' advance notice of non-renewal, Kidokinetics must fairly compensate them. This compensation would be for the fair market value of their inventory, supplies, equipment, fixtures, and furnishings at the time of expiration.
However, there are exceptions to this compensation requirement. Kidokinetics is not obligated to compensate for personalized materials that have no value to them, or for inventory, supplies, equipment, fixtures, and furnishings that are not reasonably required for conducting the Kidokinetics business. This provision is specific to Michigan and aims to protect franchisees from unfair practices related to non-renewal and post-term restrictions.
This protection ensures that Kidokinetics franchisees in Michigan are not left with unusable assets if their franchise is not renewed and they are restricted from continuing a similar business. It is important for prospective franchisees in Michigan to understand these conditions, as they provide a safety net in the event of non-renewal, ensuring fair compensation for their investment in inventory and equipment, provided the conditions are met.