Are Bombs Away franchisees required to consent to liquidated damages or termination penalties?
Bombs_Away Franchise · 2024 FDDAnswer from 2024 FDD Document
- 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.
The "average Royalty Fees and Marketing Fund Contributions that
Source: Item 22 — CONTRACTS (FDD pages 35–36)
What This Means (2024 FDD)
According to Bombs Away's 2024 Franchise Disclosure Document, franchisees may be subject to liquidated damages upon termination of the franchise agreement under specific conditions. If Bombs Away terminates the agreement due to the franchisee's default, or if the franchisee attempts to terminate the agreement without proper cause, the franchisee must pay Bombs Away a lump sum as liquidated damages, which is not considered a penalty.
The liquidated damages are calculated based on the average Royalty Fees and Marketing Fund Contributions owed by the franchisee to Bombs Away over the 12-month period preceding the cessation of business operations. This average is then multiplied by the lesser of 24 or the number of months remaining in the current term of the franchise agreement. If the franchisee has operated the business for less than 12 months, the calculation will be based on the average Royalty Fees and Marketing Fund Contributions owed during the actual period of operation.
This clause means that a Bombs Away franchisee who breaches the agreement could face a significant financial obligation upon termination, potentially covering up to two years' worth of royalties and marketing contributions. Prospective franchisees should carefully consider this potential liability and ensure they understand the conditions under which termination and associated liquidated damages may apply. It is advisable to consult with a legal professional to fully understand the implications of this clause before entering into a franchise agreement with Bombs Away.