Under what conditions is Kidokinetics required to compensate a franchisee for inventory upon non-renewal?
Kidokinetics Franchise · 2024 FDDAnswer from 2024 FDD Document
- (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 Kidokinetics's 2024 Franchise Disclosure Document, certain provisions regarding non-renewal are subject to state laws, particularly in Michigan. Michigan law stipulates that if the franchise agreement prohibits a franchisee from continuing a similar business in the same area after the franchise expires, or if the franchisee does not receive at least six months' advance notice of non-renewal, Kidokinetics must fairly compensate the franchisee for the fair market value of their inventory, supplies, equipment, fixtures, and furnishings at the time of expiration.
However, this compensation requirement does not extend to personalized materials that have no value to Kidokinetics, or to inventory, supplies, equipment, fixtures, and furnishings not reasonably required for the franchise business. Additionally, this provision is only applicable if the franchise term is less than five years.
This means that a Kidokinetics franchisee in Michigan with a franchise term of less than five years may be entitled to compensation for certain assets if Kidokinetics chooses not to renew the agreement and the franchisee is restricted from operating a similar business or does not receive sufficient notice. Franchisees should carefully review their franchise agreement and any state-specific addenda to understand their rights and obligations regarding non-renewal and compensation for inventory.