When can a Management Recruiters franchisee exercise the buy-out termination option?
Management_Recruiters Franchise · 2024 FDDAnswer from 2024 FDD Document
- **20.5.
Buy-Out Termination.** Commencing on January 1 of the last full calendar year of the Initial Term under this Agreement, Franchisee may terminate this Agreement and
Franchisor will waive the competitive restrictions imposed by Section 17 on the following conditions:
- Franchisee must send Franchisor written notice ("Notice") six (6) months prior to the date of the proposed buy-out;
- Franchisee must pay Franchisor a buy-out price equal to fifteen percent (15%) of the Gross Funds of the Franchise Business during the immediately preceding twelve (12) calendar months;
- the Notice must include a cash deposit of one-third (1/3) of the amount due Franchisor for the buy-out, along with a promissory note ("Note") for the balance upon such terms and on such forms as Franchisor prescribes, and Franchisor's standard form of mutual termination agreement utilized in this context;
- Interest on the Note accrues from the date Franchisor receives the Notice;
- If, after sending such Notice to Franchisor, Franchisee does not consummate the transaction, Franchisor may either: (i) retain fifty percent (50%) of the deposit paid with Franchisee's Notice as liquidated damages, and not as a penalty, and keep this Agreement in force; or (ii) purchase the Franchise Business by paying to Franchisee an amount equal to the then net book value of the tangible assets of the Franchise Business, as disclosed in the balance sheet for the Franchise Business, provided that each depreciable asset shall be valued as if it had been depreciated on a "straight-line" basis from the date of its acquisition over its useful life without provision for its salvage value, retain the deposit and return the Note.
Source: Item 23 — RECEIPTS (FDD pages 67–327)
What This Means (2024 FDD)
According to Management Recruiters' 2024 Franchise Disclosure Document, a franchisee can exercise the buy-out termination option starting on January 1 of the last full calendar year of the initial franchise term. To initiate this process, the franchisee must provide Management Recruiters with a written notice six months before the proposed buy-out date.
To proceed with the buy-out, the franchisee must pay Management Recruiters a buy-out price equivalent to 15% of the franchise's gross funds from the preceding 12 calendar months. Along with the notice, the franchisee is required to submit a cash deposit amounting to one-third of the total buy-out price. Additionally, they must include a promissory note for the remaining balance, following the terms and forms prescribed by Management Recruiters, as well as the standard mutual termination agreement.
Interest accrues on the promissory note from the date Management Recruiters receives the buy-out notice. If the franchisee decides not to finalize the buy-out after sending the notice, Management Recruiters has the option to retain 50% of the initial deposit as liquidated damages, keeping the agreement in force. Alternatively, Management Recruiters can choose to purchase the franchise business by paying the franchisee an amount equal to the net book value of the tangible assets, depreciated on a straight-line basis, while retaining the deposit and returning the promissory note.