When calculating depreciation for the book value of personal property purchased by Mr. Sandless, what depreciation method and schedule are used?
Mr_Sandless Franchise · 2025 FDDAnswer from 2025 FDD Document
We or our assignee also have the option, but are not obligated, to purchase any personal property used in connection with operation of your Business by providing you written notice of our election within thirty (30) days after termination or expiration of this Agreement and paying you the book value for such personal property within thirty (30) days of such notice. For purposes of this Section, "book value" means the amount you actually paid for the personal property less depreciation (calculated by using the straightline depreciation method on a five (5) year depreciation schedule irrespective of the depreciation method or schedule you use for accounting purposes). Notwithstanding the foregoing, to the extent that we exercise our right to purchase any personal property that is subject to a lease or finance agreement, the purchase price of such personal property shall equal the amount of your remaining obligations under the lease or finance agreement, as applicable. We shall be entitled to offset the purchase price by the amount of money owed by you to us for any payments necessary to acquire clear title to property or for any other debt. If we exercise our option to purchase, pending the closing of such purchase, we have the right to appoint a manager to maintain operation of the Business, or we may require that you close the Business during such period without removing any assets. You are required to maintain in force all insurance policies required under this Agreement until the date of such closing.
Source: Item 22 — CONTRACTS (FDD page 42)
What This Means (2025 FDD)
According to Mr. Sandless's 2025 Franchise Disclosure Document, the depreciation method used to calculate the book value of personal property is the straight-line depreciation method. This calculation is based on a five-year depreciation schedule.
This means that when Mr. Sandless or its assignee exercises the option to purchase personal property from a franchisee upon termination or expiration of the franchise agreement, the value of that property will be determined by subtracting the accumulated straight-line depreciation over five years from the original purchase price. This calculation applies regardless of the depreciation method or schedule the franchisee uses for their own accounting purposes.
For a prospective Mr. Sandless franchisee, this is important because it dictates how the value of their assets will be assessed if Mr. Sandless decides to buy them back. Using the straight-line method over five years provides a standardized and predictable way to determine the book value, which may differ from how the franchisee depreciates the assets for tax or internal accounting purposes. Franchisees should keep this in mind when making capital investments in their business, as the resale value to Mr. Sandless will be calculated using this specific depreciation method and schedule.