How does 360 Painting calculate the Lost Profits fee if a franchisee is terminated for cause?
360_Painting Franchise · 2025 FDDAnswer from 2025 FDD Document
age-17-2">ITEM 6: OTHER FEES
| Type of Fee | Amount | Due Date | Remarks |
|---|---|---|---|
| Royalty | 6% of Gross Sales; $150 per week | Tuesday, | Based on the previous week’s |
| minimum | Weekly | Gross Sales. | |
| Marketing Fund | The greater of 2% of Gross Sales | Tuesday, | Based on the previous week’s |
| Contribution | per week or $50 per week | Weekly | Gross Sales. |
| Type of Fee | Amount | Due Date | Remarks |
| --- | --- | --- | --- |
| Annual Convention | Attendance fee varies (Currently, $1,000). $2,000 if you do not attend, but we may modify the fees on notice to you based on our then current allocated costs. | Upon demand | Attendance fee varies depending on convention location. |
| Cost of Enforcement | All costs and expenses, including attorneys’ fees | Upon demand | You must reimburse us for all costs and expenses incurred as a result of your default. |
| Indemnification | All damages and costs including attorneys’ fees | Upon demand | You must defend lawsuits at your cost and hold us harmless against lawsuits arising from your operation of the Business. |
| Warranty Service after Transfer | Our cost, plus 15% | After transfer, upon demand | If you transfer the Business and are unable or fail to perform service on warranties you issued as a Franchisee, you must reimburse us our cost to perform the work, plus an administrative charge of 15%. |
| Warranty Assurance | $10,000 | On termination or expiration | To ensure that any customer warranties you issued during the term are honored, you must post a bond in an amount equal to 0.5% of your Gross Sales for the 24 months before termination or expiration or (if the amount of the bond would be less than $10,000) pay us $10,000. |
| Taxes | Amount required to reimburse us for certain taxes imposed on payments to us | Upon demand | If any payments to us are taxed (not income tax), the Royalty will be increased so that the net payment to us is the same as without the tax. |
| Lost Profits | An amount equal to the royalties, marketing fund payments and other fees that you would have paid to us had you operated the Business for the full duration of the term of the Franchise Agreement. | Upon demand | We are entitled to our lost profits if you are terminated for cause or otherwise fail to operate the business for the entire term of the Franchise Agreement. |
| Type of Fee | Amount | Due Date | Remarks |
| ------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| Annual Convention | Attendance fee varies (Currently, $1,000). $2,000 if you do not attend, but we may modify the fees on notice to you based on our then current allocated costs. | Upon demand | Attendance fee varies depending on convention location. |
| Cost of Enforcement | All costs and expenses, including attorneys' fees | Upon demand | You must reimburse us for all costs and expenses incurred as a result of your default. |
| Indemnification | All damages and costs including attorneys' fees | Upon demand | You must defend lawsuits at your cost and hold us harmless against lawsuits arising from your operation of the Business. |
| Warranty Service after Transfer | Our cost, plus 15% | After transfer, upon demand | If you transfer the Business and are unable or fail to perform service on warranties you issued as a Franchisee, you must reimburse us our cost to perform the work, plus an administrative charge of 15%. |
Source: Item 6 — OTHER FEES (FDD pages 18–21)
What This Means (2025 FDD)
According to 360 Painting's 2025 Franchise Disclosure Document, if a franchisee is terminated for cause or fails to operate the business for the entire term of the Franchise Agreement, 360 Painting is entitled to lost profits. This lost profits fee is calculated as the sum of the royalties, marketing fund payments, and other fees that the franchisee would have paid to 360 Painting had they operated the business for the full duration of the Franchise Agreement.
In simpler terms, 360 Painting seeks to recoup the income it would have received from the franchisee over the remaining term of the agreement. This includes not only the royalty fees (6% of gross sales or $150 per week, whichever is greater) and marketing fund contributions (the greater of 2% of gross sales per week or $50 per week), but also any other fees outlined in the agreement. The FDD specifies that gross sales means the total of all monies and receipts derived in connection with the business, excluding certain taxes, promotional allowances or rebates, and the value of approved coupons, discounts or customer refunds.
This lost profits clause is a significant financial consideration for prospective 360 Painting franchisees. If a franchisee breaches the agreement and is terminated, they could be liable for a substantial sum, potentially encompassing several years' worth of fees. It is important to note that all fees outlined in Item 6 of the FDD are current as of the issuance date of the document, and 360 Painting reserves the right to modify the amount, manner of payment, and/or timing for payment for all fees payable to them or their affiliates, except that they will not modify the amount of the Royalty Fee or the Market Fund contribution you pay to them during the initial term of your Franchise Agreement.
Prospective franchisees should carefully evaluate the terms of the Franchise Agreement and consider the potential financial implications of early termination. Understanding the factors that could lead to termination for cause and the methods for calculating lost profits is crucial for making an informed investment decision. It would be prudent to consult with a franchise attorney to fully understand the implications of this clause and to assess the overall financial risks associated with the 360 Painting franchise.