How are Lost Revenue Damages calculated for a Bft franchise if the studio ceases operation?
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.
Franchisor and Franchisee acknowledge and agree that (a) their agreement on the calculation of Lost Revenue Damages is a reasonable determination of actual damages that will be suffered by Franchisor in the event of a termination as described above and is not a penalty, and (b) Lost Revenue Damages represent only lost Royalty and Fund Contributions, and the right to recover such damages is not exclusive of and does not replace any other rights Franchisor has under this Agreement or applicable law if this Agreement is terminated as described above, including the right to seek other damages it suffers as a result of a termination as described above or the events on which such termination was based.
Source: Item 23 — RECEIPTS (FDD pages 79–265)
What This Means (2025 FDD)
According to Bft's 2025 Franchise Disclosure Document, if a franchisee terminates the agreement without cause, or Bft terminates the agreement due to the franchisee's breach, Bft will suffer compensable damages, referred to as "Lost Revenue Damages." These damages include the royalty and fund contributions Bft would have received.
Since royalty and fund contributions are calculated as a percentage of the studio's gross sales, it becomes impossible to calculate lost revenue damages once the studio ceases operation. To address this, Bft and the franchisee agree that lost revenue damages will be calculated as the net present value of a specific formula. This formula involves several factors: the lesser of 36 months or the number of months remaining on the term, the sum of the royalty and fund contribution percentages in effect at termination, and the average monthly gross sales of the studio during the 24 months before termination. Any cost savings Bft experiences due to the termination will be subtracted from this amount.
If the Bft studio has not operated for a full 24 months as of the termination date, the monthly average gross sales will be determined using the highest monthly gross sales achieved during its operational period. Furthermore, if the termination results from the franchisee's unapproved closure of the studio, the average monthly gross sales will be based on the 24 months immediately preceding the closure. Bft and the franchisee acknowledge that this calculation is a reasonable determination of actual damages and not a penalty. These lost revenue damages only represent lost royalty and fund contributions and do not exclude Bft's right to seek other damages under the agreement or applicable law.