What is the minimum period of operation required to calculate liquidated damages for Afuri Ramen Dumpling?
Afuri_Ramen_Dumpling Franchise · 2024 FDDAnswer from 2024 FDD Document
Accordingly, in the event that Franchisee terminates this Agreement other than in accordance with the terms of Section 6.2, or if Afuri terminates this Agreement pursuant to its terms, then Franchisee shall pay to Afuri within thirty (30) days of such termination as liquidated damages (and not as a penalty), an amount equal to the Royalty Fees you should have paid had this Agreement not been terminated, for the lesser of (1) 24 months, or (2) the number of months remaining on the term of this Agreement. Such payment will be calculated based on the average Royalty Fees you paid (or if unpaid, payable) during the 12 months immediately preceding the termination date (or shorter period if you will have operated for less than 12 months). The parties hereby acknowledge and agree that the actual damages that would be incurred by Afuri in the event of any breach or early termination of this Agreement by Franchisee would be difficult to calculate and that the liquidated damages provided for in this Agreement are fair and reasonable under the circumstances. The parties further acknowledge and agree that the liquidated damages specified in this Section are only intended to compensate Afuri for the early termination of this Agreement and Afuri's loss of royalty revenue resulting therefrom, but not for any other breach of this Agreement by Franchisee or any other damages incurred by Afuri, and all remedies applicable thereto remain available to Afuri.
Source: Item 23 — Receipts (FDD pages 50–189)
What This Means (2024 FDD)
According to Afuri Ramen Dumpling's 2024 Franchise Disclosure Document, the minimum period of operation required to calculate liquidated damages is a shorter period than 12 months if the franchisee has operated for less than 12 months. This calculation is used if the franchisee terminates the agreement outside the terms of Section 6.2, or if Afuri Ramen Dumpling terminates the agreement according to its terms.
Liquidated damages are calculated based on the average royalty fees paid (or payable) during the 12 months immediately preceding the termination date. However, if the franchisee has been in operation for less than 12 months, the calculation will be based on the shorter period of operation. This means that new Afuri Ramen Dumpling franchisees are not penalized based on a full year of potential royalties if they haven't been operating that long.
This approach to liquidated damages is designed to compensate Afuri Ramen Dumpling for the loss of royalty revenue due to early termination, while also acknowledging that a newer franchise will have a shorter track record of earnings. It is important to note that these liquidated damages are specifically for the loss of royalty revenue and do not cover any other breaches of the agreement or damages incurred by Afuri Ramen Dumpling, for which other remedies may be pursued.