How are liquidated damages calculated by 1-800-GOT-JUNK? if the Franchise Agreement is terminated due to the franchisee's default?

According to 1-800-GOT-JUNK?'s 2025 Franchise Disclosure Document, if the Franchise Agreement is terminated due to the franchisee's default, 1-800-GOT-JUNK? will require the franchisee to pay liquidated damages. These damages are calculated as 100% of the Royalties and 30% of the Sales, Marketing and Technology Fees that would have been due for the remainder of the term. This calculation is based on the average monthly Royalties (or Minimum Royalty, if greater) and Sales, Marketing and Technology Fees paid during the 12 months prior to termination.

For a prospective 1-800-GOT-JUNK? franchisee, this means that if you default on your agreement, you could be responsible for a significant sum of money. The amount will depend on your past revenue and the length of the remaining term of the agreement. The calculation uses the greater of either the average monthly royalties or the minimum royalty, ensuring that 1-800-GOT-JUNK? receives at least the minimum amount they expect.

This type of liquidated damages clause is relatively common in franchising to protect the franchisor from losses due to a franchisee's early termination. However, the specific calculation methods can vary. It is important for a prospective franchisee to understand how these damages are calculated, as they can represent a substantial financial obligation. Franchisees should carefully consider the potential financial implications of defaulting on the Franchise Agreement and seek legal counsel to fully understand their obligations.