Under what circumstances can Big Apple Bagels impose liquidated damages against a franchisee?
Big_Apple_Bagels Franchise · 2025 FDDAnswer from 2025 FDD Document
- g. Liquidated Damages.
Franchisor shall have the right to impose liquidated damages against Franchisee in the following events: (a) Franchisee terminates this Agreement without good cause, (b) Franchisor terminates this Agreement based on Franchisee's material breaches under this Agreement, (c) Franchisee abandons the BAGELS Store, which for purposes of this Section is failing to open or operate the BAGELS Store for more than three (3) consecutive days, or (d) Franchisee transfers an interest in the BAGELS Store or the ownership of Franchisee or of the assets of Franchisee or the BAGELS Store (or any interest therein) without fully complying with Paragraph 14.b. of this Agreement, whether or not Franchisor terminates this Agreement.
The amount of liquidated damages shall be equal to (i) the number of months remaining in the term of this Agreement, times (ii) the average Gross Revenues of Franchisee's Store during the thirty-six (36) month period immediately preceding the date of termination (or if Franchisee has been in business less than 36 months, then during the entire period Franchisee has been in business), times (iii) five percent (5%), times (iv) the present value factor based on an interest rate of four percent (4%) per year (4/12% per month), using the Present Value of an Annuity.
This remedy is in addition to Franchisor's other rights and remedies set forth in this Agreement.
The liquidated damages are not a penalty or forfeiture, but are a reasonable measure of damages where the exact amount of actual damages would be difficult to ascertain.
Franchisee also agrees to pay the Company's costs and attorney's fees in connection with enforcing this Liquidated Damages provision.
Source: Item 22 — CONTRACTS (FDD pages 86–87)
What This Means (2025 FDD)
According to Big Apple Bagels' 2025 Franchise Disclosure Document, Big Apple Bagels has the right to impose liquidated damages against a franchisee under specific circumstances. These circumstances include if the franchisee terminates the agreement without good cause, if Big Apple Bagels terminates the agreement due to the franchisee's material breaches, if the franchisee abandons the Big Apple Bagels store by failing to open or operate it for more than three consecutive days, or if the franchisee transfers an interest in the store or its assets without complying with the agreement's transfer provisions.
The amount of liquidated damages will be calculated based on several factors. These factors are the number of months remaining in the franchise agreement term, the average gross revenues of the franchisee's store over the 36 months before termination (or the entire operating period if less than 36 months), five percent of that average revenue, and the present value factor based on a 4% annual interest rate.
Big Apple Bagels states that this remedy is in addition to any other rights and remedies they have under the agreement. The document clarifies that the liquidated damages are not considered a penalty but are designed to reasonably measure damages when the exact amount of actual damages would be difficult to determine. Additionally, the franchisee is responsible for covering Big Apple Bagels' costs and attorney's fees associated with enforcing the liquidated damages provision.