For a Bft franchise, what is the maximum number of months used to calculate Lost Revenue Damages?
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 the 2025 FDD, Bft outlines how it calculates Lost Revenue Damages if a franchisee terminates the agreement without cause, or if Bft terminates the agreement due to the franchisee's breach. To bring certainty to the determination of lost revenue, Bft and the franchisee agree that Lost Revenue Damages will equal the net present value of a specific calculation.
The calculation involves several factors, including the lesser of 36 months or the number of calendar months remaining on the term, the sum of Royalty and Fund Contribution percentages, and the average monthly Gross Sales of the studio. The average monthly Gross Sales are calculated based on the 24 full calendar months immediately preceding the termination date. However, if the studio hasn't operated for a full 24 months, the highest monthly Gross Sales achieved during its operation will be used. If the termination was due to the franchisee's unapproved closure, the average monthly Gross Sales will be based on the 24 months before the closure.
Therefore, the maximum number of months that Bft uses to calculate Lost Revenue Damages is 36 months. This figure is used as a ceiling, and the actual number of months used in the calculation will be the lesser of 36 or the remaining months on the franchise term. This agreement aims to provide a reasonable determination of actual damages suffered by Bft and is not considered a penalty.