Are the liquidated damages I pay to Beggars Pizza if I default considered a penalty?
Beggars_Pizza Franchise · 2025 FDDAnswer from 2025 FDD Document
- 16.8 Liquidated Damages.
If the Agreement is terminated prior to the end of its term due to Franchisee's default, in addition to the amounts set forth in Section 16.7, Franchisee must promptly pay to Franchisor a lump sum payment as damages and not as a penalty for breaching the Agreement in an amount equal to (a) the average monthly continuing royalty fee and Brand Fund fee payable by Franchisee under Section 4.3 and Section 12.4 over the twelve (12)-month period immediately preceding the date of termination (or such shorter time period if the Restaurant has been open less than twelve (12) months) (b) multiplied by the lesser of (i) thirty-six (36) months, or (ii) the number of months then remaining in the then-current term of the Agreement.
Franchisee acknowledges that a precise calculation of the full extent of the damages Franchisor will incur if termination of the Agreement occurs as a result of Franchisee's default is difficult to determine and that this lump sum payment is reasonable in light of the damages Franchisor will incur for Franchisee's premature termination of the Agreement.
This lump sum payment will be in lieu of any damages Franchisor may incur as a result of Franchisee's default, but it will be in addition to all amounts provided in Section 16.7 and any attorneys' fees and other costs and
expenses to which Franchisor is entitled under the terms of the Agreement including, without limitation, Section 25.8. Franchisee's payment of this lump sum will not affect Franchisor's right to obtain appropriate injunctive relief and remedies to enforce this Section 16 and the covenants set forth in Section 10 and Section 17.
Source: Item 22 — CONTRACTS (FDD page 39)
What This Means (2025 FDD)
According to Beggars Pizza's 2025 Franchise Disclosure Document, the liquidated damages you pay if the Franchise Agreement is terminated early due to your default are not considered a penalty. Instead, Beggars Pizza considers this payment as compensation for breaching the agreement.
The liquidated damages are calculated as a lump sum payment. This payment is equal to the average monthly continuing royalty fee and Brand Fund fee, calculated over the 12 months before termination (or a shorter period if the restaurant has been open for less than a year). This average is then multiplied by either 36 months or the number of months remaining in the agreement's term, whichever is less.
The FDD states that calculating the exact damages Beggars Pizza would incur from an early termination due to a franchisee's default is difficult, and the lump sum payment is a reasonable estimate of those damages. This payment is in place of any other damages Beggars Pizza might incur due to the default, but it is in addition to other amounts owed as specified in Section 16.7 of the agreement, as well as any attorney's fees and other costs.
It is important to note that even with this liquidated damages payment, Beggars Pizza retains the right to pursue injunctive relief and other remedies to enforce the agreement's terms, particularly those related to specific covenants outlined in Sections 10 and 17.