Under what circumstances are liquidated damages clauses unenforceable in California, according to the Alloy Franchise Agreement addendum?

According to Alloy's 2025 Franchise Disclosure Document, specifically the California addendum to the franchise agreement, certain liquidated damages clauses may not be enforceable. The addendum states that under California Civil Code Section 1671, some liquidated damages clauses are unenforceable. This means that if Alloy includes a clause in its franchise agreement that requires a franchisee to pay a predetermined amount of damages in the event of a breach, that clause might not hold up in court, depending on the specifics of the clause and the circumstances.

For a prospective Alloy franchisee in California, this is an important protection. Liquidated damages clauses can be very costly if they are enforced. The franchisee should consult with a legal professional to fully understand the implications of any liquidated damages clause in the Alloy franchise agreement and whether it is enforceable under California law. This is especially important since the enforceability depends on the specifics of the clause itself.

It is common for franchise agreements to include liquidated damages clauses, but their enforceability varies by state. California's approach, as reflected in the addendum, provides an additional layer of protection for franchisees. Alloy franchisees should be aware of this protection and seek legal advice to ensure their rights are protected.