Under what circumstances is Azal Coffee entitled to recover liquidated damages for loss of bargain?
Azal_Coffee Franchise · 2024 FDDAnswer from 2024 FDD Document
s or intent, survive expiration or termination of this Agreement.
16.5 Liquidated Damages for Loss of Bargain.
In addition to any other remedies available to us, if this Agreement is terminated before its expiration (other than termination by you for cause), we will be entitled to recover from you liquidated damages attributable to the loss of bargain resulting from that termination. You and we stipulate and agree that our liquidated damages for loss of bargain will be the royalty fees and marketing fund contributions that would have been payable to us for the balance of the term of this Agreement, but not more than thirty-six (36) months. You and we agree that the aggregate amount of royalty fees and marketing fund contributions that would have been payable will be calculated utilizing annual Gross Sales equal to the annual Gross Sales of the Franchise Business for the twelve (12) month period [or such lesser period if the Licensee was not in operation for a full twelve (12) months] immediately preceding the date of termination or the date that you ceased to operate if earlier than the date of termination and multiplying that amount by the applicable time period. If we terminate this Agreement before you open your franchise, you agree that liquidated damages will be One Hundred Thousand Dollars ($100,000). You and we acknowledge and agree that our actual loss of bargain damages are incapable of calculation at the time of execution of this Agreement and the liquidated damages calculated under this Section are a reasonable estimation of those damages. If the liquidated damages for loss of bargain payable under this Section are found to be invalid or unenforceable because they are found to be either a penalty or not a reasonable estimation of actual damages, the amount of the liquidated damages will be automatically amended to the extent necessary to be found valid and enforceable. The liquidated damages for loss of bargain described in this Section cover only our damages from the loss of revenue as a result of our being unable to operate, or to allow a third party to operate, a Store at the Franchise Location. You and each of your owners agree that these liquidated damages do not cover any other remedies or damages to which we may be entitled as a result of your actions or inactions, including without limitation, past-due fees and expenses owed to us, injunctive relief to enforce trademark violations and restrictions on competition, and do not give us
Source: Item 22 — CONTRACTS (FDD page 51)
What This Means (2024 FDD)
According to Azal Coffee's 2024 Franchise Disclosure Document, Azal Coffee is entitled to recover liquidated damages for loss of bargain if the Franchise Agreement is terminated before its expiration, unless the franchisee terminates the agreement for cause. These liquidated damages are intended to compensate Azal Coffee for the anticipated loss of revenue due to the inability to operate or allow a third party to operate a store at the franchise location.
The liquidated damages for loss of bargain are calculated as the royalty fees and marketing fund contributions that would have been payable for the remaining term of the agreement, capped at a maximum of 36 months. The calculation is based on the franchise's annual Gross Sales for the 12-month period immediately preceding the termination date or the date the franchisee ceased operations, whichever is earlier. However, if Azal Coffee terminates the agreement before the franchisee opens their franchise, the liquidated damages will be a fixed amount of $100,000.
The FDD states that Azal Coffee and the franchisee agree that calculating the actual loss of bargain damages is not possible when the agreement is signed, and that the liquidated damages are a reasonable estimate of those damages. If the predetermined liquidated damages are deemed invalid or unenforceable, the amount will be adjusted to the minimum extent necessary to ensure validity and enforceability. It is important to note that these liquidated damages only cover the loss of revenue and do not preclude Azal Coffee from pursuing other remedies or damages resulting from the franchisee's actions or inactions, such as past-due fees, injunctive relief, or enforcement of other agreement provisions.
This clause is significant for prospective Azal Coffee franchisees as it outlines the financial implications of early termination. Franchisees should carefully consider the potential cost of liquidated damages, especially if they anticipate any circumstances that might lead to termination. Understanding how these damages are calculated and the conditions under which they apply is crucial for making an informed decision about investing in an Azal Coffee franchise.