Under what conditions are liquidated damages clauses in the Alloy franchise agreement unenforceable according to California Civil Code Section 1671?

According to Alloy's 2025 Franchise Disclosure Document, for franchises sold in California, the franchise agreement contains a liquidated damages clause that may be unenforceable under California Civil Code Section 1671. This information is found in an addendum to the franchise agreement specifically for California franchisees, indicating that certain provisions of the standard agreement are modified to comply with California law. This addendum takes precedence over any conflicting terms in the main franchise agreement.

For a prospective Alloy franchisee in California, this means that the standard liquidated damages clause in the franchise agreement might not be fully enforceable. Liquidated damages typically specify an amount of money to be paid if the franchisee breaches the agreement. However, California law places restrictions on these clauses to ensure they are not punitive.

It is important for potential Alloy franchisees in California to consult with legal counsel to understand the specific circumstances under which the liquidated damages clause would be deemed unenforceable. This could significantly impact the financial consequences of terminating the franchise agreement early or otherwise breaching its terms. The FDD encourages franchisees to seek independent legal advice to fully understand their rights and obligations under California law.