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Coaching a potential franchisee of Tim Hortons

November 16, 2012 3 comments

coffeeWhether or not you believe that this is actually going on at Tim Hortons, the undeniable truth from the court documents, the contract, and the transcripts speak for themselves. If we can help anyone make a more informed decision then we have achieved our goal. All you need to do is ask the question to see actual financials and tax records or if Tim Hortons is trying to sell you a new store, ask how the pro-forma was prepared, is it from actual stores, what year was it produced, what geographical location, and who made the document. If they can’t (and they won’t) answer any of those questions and provide that information to you, then I think you can take what is written here for the truth. 

Because of the clause in the contract where you cannot sell the franchise and must make the profit from day-to-day sales, then essentially you are buying yourself a job, a very expensive job where you pay Tim Hortons to work for them and then Tim Hortons can control you.  Is this not essentially slave labor?  Labor for no money.  You would be better off being an employee and getting a paycheck than an owner and having to put your hard-earned money in every month to pay the bills.

If anything, take the contract to any lawyer (preferably a contract lawyer) and ask about the clauses below, included is the full contract in pdf;

Tim Hortons Contract.pdf (in full)…takes some time to load as this is the entire agreement.

Also check out clauses; 13.01 (a), 15.00 (a), 16.13 (b)

 What about the fact you cannot sell the business or make any money from growing the business (goodwill). Right in the contract it states;

Article 11 Transferability of Interest

Section 11.01

Restrictions on Licensee’s Right to Transfer: The Licensee acknowledges that the rights and duties set forth in this Agreement are personal to the Licensee and that the Licensor has granted this license in reliance on the Licensee’s business skill and financial capacity. The Licensee therefore covenants with the licensor as follows: 

(a) in the event the licensee wishes to sell, assign, transfer, convey or give away the Tim Hortons Shop business carried on at the Premises pursuant to this Agreement during the first (5) years of the term hereby granted, the Licensee shall do so only by offering to resell the Tim Hortons Shop business to the Licensor at the depreciated value of the furniture, equipment, and signs, and “depreciated value” shall be as herein defined in subparagraph and 12.02(i). The Licensor shall have the option of repurchasing said business in accordance with this subsection within (30) days of receipt of written notice from the Licensee advising it wishes to sell the business. In the event the licensor does not exercise its option to repurchase the business in accordance with this subsection, the Licensee shall have the right to sell the business to a third-party at the purchase price set out in this subsection and in accordance with the terms of Section 11.02;

Tim Hortons is the only one who can purchase the business. No money for building the sales, this will happen to every store owner you see. They do not pay anything for the store. You can contact the site and we have the actual calculation Tim Hortons uses to depreciate the store. In the first year you will lose 1/3 of the purchase price and by 5 years the business has no value.

Buyback .pdf letter from Tim Hortons.

Section 11.02 (3)

Notwithstanding any other clause in this agreement to the contrary, the Licensee acknowledges that it is the policy of the Licensor (Tim Hortons) that the profitability of the Tim Horton Shop business should be derived from the day to day operations of the business and not from the resale of the business. The Licensee therefore covenants and agrees that the licensor may arbitrarily withhold its consent to any transfer of this Agreement in whole or in part if it feels that in its sole and absolute discretion the sale or transfer price to be paid by any proposed transferee is such that the proposed transferee will not be maintaining a cash flow consistent with the proforma-stated operating results contained in the Confidential Operating Manual, normalized as considered necessary by the Licensor acting in a reasonable manner, or if such transfer price is not consistent with the then current selling price of a Tim Hortons shop adjusted for the number of years remaining in this Agreement and for the ratio of its sales level to the preceding calendar year’s average store sales level of the “Tim Hortons System”

Section 6.05-

Inurement Solely to Licensor: The licensee agrees that all goodwill associated with the “TIM HORTONS SYSTEM” and identified by the Licensor’s Trademarks used in connection therewith shall inure directly and exclusively to the benefit of the licensor and is the property of the Licensor and that upon expiration or termination of the Agreement, no monetary amount shall be assigned as attributable to any goodwill associated with any of the Licensee’s activities in the operation of the Tim Hortons Shop licensed herein,or the Licensee’s use of the Licensor’s Trademarks.

All potential franchisees must sign this Independent Legal and Financial Letter .pdf  This was taken to a lawyer and fully gone over. The lawyer commented that this is a standard contract that everyone signs. The lawyer did not tell us that the business could not be sold, that no money is paid for goodwill. Tim Hortons will rely on this document in court.

What this means if you own a store, take what Tim Hortons will give you (store owners paid little to nothing for their stores, some will pay to have the store taken back, some paid $1, yes one dollar, and some cut a check just to leave!no goodwill, you will not be able to sell. It is depreciated at 20% per year (worth ZERO after 5 years…right in the contract). Interesting how it states right in the contract to not expect your profit from the sale of the store. Who would buy a Tim Hortons if you already know before hand that you will receive nothing for the Tim Hortons franchise. Stated right in the contract!!

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