Can a Bombs Away franchisee terminate the agreement and avoid liquidated damages?
Bombs_Away Franchise · 2024 FDDAnswer from 2024 FDD Document
ARTICLE 14. DEFAULT AND TERMINATION
14.1 Termination by Franchisee. Franchisee may terminate this Agreement only if Bombs Away Franchising violates a material provision of this Agreement and fails to cure or to make substantial progress toward curing the violation within 30 days after receiving written notice from Franchisee detailing the alleged default. Termination by Franchisee is effective 10 days after Bombs Away Franchising receives written notice of termination.
14.2 Termination by Bombs Away Franchising.
- 14.5 Liquidated Damages. If Bombs Away Franchising terminates this Agreement based upon Franchisee's default (or if Franchisee purports to terminate this Agreement except as permitted under Section 14.1), then within 10 days thereafter Franchisee shall pay to Bombs Away Franchising a lump sum (as liquidated damages and not as a penalty) calculated as follows: (x) the average Royalty Fees and Marketing Fund Contributions that Franchisee owed to Bombs Away Franchising under this Agreement for the 12-month period preceding the date on which Franchisee ceased operating the Business; multiplied by (y) the lesser of (1) 24 or (2) the number of months remaining in the then-current term of this Agreement.
If Franchisee had not operated the Business for at least 12 months, then (x) will equal the average Royalty Fees and Marketing Fund Contributions that Franchisee owed to Bombs Away Franchising during the period that Franchisee operated the Business.
Source: Item 22 — CONTRACTS (FDD pages 35–36)
What This Means (2024 FDD)
According to Bombs Away's 2024 Franchise Disclosure Document, a franchisee can terminate the franchise agreement under specific conditions. Section 14.1 states that a franchisee may terminate the agreement if Bombs Away violates a material provision of the agreement and fails to cure or make substantial progress toward curing the violation within 30 days after receiving written notice from the franchisee detailing the alleged default. The termination is effective 10 days after Bombs Away receives written notice of termination. If the franchisee terminates the agreement under this condition, they would not be subject to liquidated damages.
However, if Bombs Away terminates the agreement due to the franchisee's default, or if the franchisee attempts to terminate the agreement without proper cause as outlined in Section 14.1, the franchisee may be required to pay liquidated damages. These damages are calculated based on the average Royalty Fees and Marketing Fund Contributions owed by the franchisee for the 12-month period preceding the date the business ceased operating, multiplied by the lesser of 24 or the number of months remaining in the agreement's term. If the business has operated for less than 12 months, the calculation will be based on the average Royalty Fees and Marketing Fund Contributions owed during the period the business was in operation.
In summary, a Bombs Away franchisee can terminate the agreement without incurring liquidated damages only if Bombs Away is in material breach of the agreement and fails to remedy the breach within the specified timeframe. Terminating the agreement under any other circumstances, particularly if it's due to the franchisee's default, will likely result in the franchisee being liable for liquidated damages as specified in the franchise agreement.