What is the maximum period for which Royalty Fees, advertising contributions, and Administration Fees are considered when calculating liquidated damages for premature termination of an Anago franchise agreement?
Anago Franchise · 2025 FDDAnswer from 2025 FDD Document
If termination is the result of Your default, You will pay to Us a lump sum payment (as liquidated damages for causing the premature termination of this Agreement and not as a penalty) equal to the net present value of the total of all Royalty Fees, advertising contributions and Administration Fees that would have become due from the date of termination to the earlier of: (i) 36 months following termination; or (ii) the scheduled expiration date of this Agreement. For this purpose, the Royalty Fees, advertising contributions and Administration Fees shall be calculated based on the average Gross Revenues of your Unit Franchise for the 12 months preceding the termination date. In the event your Unit Franchise has not been in operation for at least 12 months preceding the termination date, then the calculation will be based on the average Gross Revenues of your Unit Franchise for the number of full calendar months your Unit Franchise was in operation.
The parties agree that a precise calculation of the full extent of the damages that We would incur on termination of this Agreement as a result of Your default, due to the loss or interruption of the revenue stream We otherwise would have derived from Your continued operation, would be difficult if not impossible to determine and the parties desire certainty in this matter, and agree that the lump sum payment provided under this Section is reasonable in light of the damages for premature termination that We will incur. You and We agree that the calculation described in this Section is a calculation only of the damages from the loss of the Royalty Fees, advertising contributions and Administration Fees revenue stream and that nothing in this Section shall preclude or limit Us from proving and recovering any other damages caused by Your breach of this Agreement.
Source: Item 23 — RECEIPTS (FDD pages 62–298)
What This Means (2025 FDD)
According to Anago's 2025 Franchise Disclosure Document, if the franchise agreement is terminated due to the franchisee's default, Anago calculates liquidated damages based on the net present value of Royalty Fees, advertising contributions, and Administration Fees. This calculation considers the period from the termination date up to the earlier of two dates: 36 months following termination or the scheduled expiration date of the agreement. Therefore, the maximum period considered is 36 months.
The Royalty Fees, advertising contributions, and Administration Fees are calculated based on the average Gross Revenues of the Unit Franchise for the 12 months preceding the termination date. If the Unit Franchise has not been in operation for at least 12 months, the calculation is based on the average Gross Revenues for the number of full calendar months the franchise was in operation.
Anago and the franchisee agree that precisely calculating the full extent of damages from the termination would be difficult. The liquidated damages calculation is intended to provide certainty and is considered reasonable. However, the agreement specifies that this calculation only covers damages from the loss of the revenue stream from Royalty Fees, advertising contributions, and Administration Fees. Anago retains the right to pursue additional damages caused by the franchisee's breach of the agreement.