Are the damages recovered from an Aira Fitness franchisee after an Event of Default considered a penalty?
Aira_Fitness Franchise · 2025 FDDAnswer from 2025 FDD Document
In the event of any default by you that results in a premature termination of this Agreement (regardless of which party actually terminates this Agreement), without prejudice to any other remedy we may have under the terms of this Agreement or otherwise, you must pay us, as liquidated damages and not as a penalty, an amount equal to thirty-six (36) times the Royalty owed to us over the past twelve (12) month period immediately preceding the date of termination (or if you have been in business less than twelve (12) months, then during the entire period you have been in business).
The parties acknowledge and agree that such amount represents
a reasonable estimate of the damages we will incur as a result of such default and premature termination.
Source: Item 23 — **RECEIPTS (FDD pages 59–254)
What This Means (2025 FDD)
According to Aira Fitness's 2025 Franchise Disclosure Document, the liquidated damages that Aira Fitness may recover from a franchisee due to premature termination of the Franchise Agreement are not considered a penalty. Instead, these damages are defined as a reasonable estimate of the losses Aira Fitness will incur because of the franchisee's default and the resulting early termination.
Specifically, if a franchisee defaults and the Franchise Agreement is prematurely terminated, the franchisee must pay Aira Fitness an amount equal to 36 times the Royalty owed over the 12-month period immediately preceding the termination date. If the franchisee has been in business for less than 12 months, the calculation will be based on the entire period the franchisee has been in business.
This clause aims to compensate Aira Fitness for the anticipated losses resulting from the franchisee's failure to fulfill the terms of the agreement. By explicitly stating that the liquidated damages are not a penalty, Aira Fitness seeks to ensure the enforceability of this provision, as penalties are often disfavored under the law. Prospective franchisees should understand this calculation and its potential financial impact if they fail to meet their obligations under the Franchise Agreement, leading to termination.