What cost savings are deducted from the Lost Revenue Damages calculation for a terminated Bft franchise?
Bft Franchise · 2025 FDDAnswer from 2025 FDD Document
Franchisor and Franchisee agree that Franchisor will suffer compensable damages including, among others, the amount of the Royalty and Fund Contributions it would have received, and for which it bargained in entering into this Agreement, if Franchisee terminates this Agreement without cause or Franchisor terminates this Agreement because of Franchisee's breach (the "Lost Revenue Damages"). Franchisor and Franchisee acknowledge that, because Royalty and Fund Contributions are calculated as a percentage of the Studio's Gross Sales, it will be impossible to calculate Lost Revenue
Damages once the Studio ceases operation. To bring certainty to that determination, Franchisor and Franchisee agree that Lost Revenue Damages will equal the net present value of: (1) the lesser of 36 or the number of calendar months remaining on the Term absent the termination, multiplied by (2) the sum of the Royalty and Fund Contribution percentages in effect as of the termination date, multiplied by (3) the average monthly Gross Sales of the Studio during the 24 full calendar months immediately preceding the termination date, minus (4) any cost savings Franchisor experienced as a result of the termination; provided, however, that if (i) as of the termination date, the Studio had not operated a full 24 calendar months, monthly average Gross Sales will equal the highest monthly Gross Sales achieved during the period in which it operated, and (ii) if the termination was based on Franchisee's unapproved closure of the Studio, average monthly Gross Sales would be based on the 24 full calendar months immediately preceding the closure of the Studio.
Source: Item 23 — RECEIPTS (FDD pages 79–265)
What This Means (2025 FDD)
According to Bft's 2025 Franchise Disclosure Document, the calculation of Lost Revenue Damages, which Bft may seek if a franchisee terminates the agreement without cause or if Bft terminates the agreement due to the franchisee's breach, includes a deduction for any cost savings Bft experiences as a result of the termination.
Specifically, the Lost Revenue Damages are determined by calculating the net present value of a certain number of months (either 36 or the remaining months on the term, whichever is less) multiplied by the sum of the Royalty and Fund Contribution percentages. This total is then multiplied by the average monthly Gross Sales of the studio over the 24 months before termination (or using the highest monthly Gross Sales if the studio operated less than 24 months, or based on the 24 months preceding closure if the termination was due to unapproved closure). Finally, any cost savings Bft experienced due to the termination are subtracted from this amount.
This clause benefits Bft franchisees because it ensures that the damages Bft seeks are net of any savings it realizes from the termination. This prevents Bft from potentially being overcompensated. However, the FDD does not specify what specific types of cost savings would be deducted, so prospective franchisees should seek clarification from Bft on what this entails to fully understand the potential financial implications of early termination.