If the termination of a Bft franchise is due to the franchisee's unapproved closure, how is the average monthly Gross Sales calculated for 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 Bft's 2025 Franchise Disclosure Document, if the franchise agreement is terminated due to the franchisee's unapproved closure of the studio, the average monthly Gross Sales for calculating Lost Revenue Damages will be based on the 24 full calendar months immediately preceding the closure of the studio.
Bft calculates Lost Revenue Damages to recoup the Royalty and Fund Contributions it would have received had the franchise agreement not been terminated. This calculation is based on the net present value of a formula that considers the remaining term of the agreement (up to 36 months), the combined Royalty and Fund Contribution percentages, and the average monthly Gross Sales.
This provision is important for prospective franchisees to understand because it clarifies how Bft will determine damages in the event of an unapproved closure. Franchisees should be aware that the calculation uses historical sales data, specifically the 24 months prior to closure, which could significantly impact the amount of damages owed to Bft. This could be a substantial financial burden for a franchisee who prematurely closes their Bft studio without approval.