Does the Basecamp Fitness Franchise Agreement require a franchisee to consent to termination penalties or liquidated damages?
Basecamp_Fitness Franchise · 2025 FDDAnswer from 2025 FDD Document
A. All remaining rights granted to you to develop Basecamp Fitness Studios under this Agreement will automatically be revoked and will be null and void and shall revert to us. You will not be entitled to any refund of any fees.
- B. You and your affiliates must within five (5) business days of the termination or expiration pay all sums owing to us and our affiliates. In addition, you agree to pay as fair and reasonable liquidated damages (but not as a penalty) an amount equal to Ten Thousand Dollars ($10,000) for each undeveloped Basecamp Studio. You agree that this amount is in addition to the Development Fee paid under this Agreement, and is for lost revenues from Royalty Fees (as defined in the Franchise Agreement) and other amounts payable to us, including the fact that you were holding the development rights for those Basecamp Studios and precluding the development of certain Basecamp Fitness studios in the Development Territory, and that it would be difficult to calculate with certainty the amount of damage we will incur. Notwithstanding your agreement, if a court determines that this liquidated damages payment is unenforceable, then we may pursue all other available remedies, including consequential damages.
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Source: Item 17 — RENEWAL, TERMINATION, TRANSFER, AND DISPUTE RESOLUTION (FDD pages 51–55)
What This Means (2025 FDD)
According to the 2025 Basecamp Fitness Franchise Disclosure Document, the Area Development Agreement includes a provision for liquidated damages upon termination. Specifically, if the agreement is terminated, the franchisee must pay $10,000 for each undeveloped Basecamp Studio as liquidated damages. Basecamp Fitness states that this amount is not a penalty but fair compensation for lost revenues, including royalty fees, and for the franchisee holding development rights that precluded other potential studios.
Basecamp Fitness acknowledges that despite the agreement, a court might deem the liquidated damages payment unenforceable. In such a case, Basecamp Fitness reserves the right to pursue all other available remedies, including seeking consequential damages. This clause highlights a potential financial risk for franchisees who fail to develop the agreed-upon number of studios, as they could face significant financial penalties.
It is important to note that California law has statutes that restrict or prohibit the imposition of liquidated damage provisions. Therefore, the enforceability of this clause may vary depending on the franchisee's location and applicable state laws. Prospective franchisees should consult with legal counsel to understand the implications of this clause and its enforceability in their specific circumstances.