Under what conditions is a Bombs Away franchisee required to pay liquidated damages?
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.
Source: Item 22 — CONTRACTS (FDD pages 35–36)
What This Means (2024 FDD)
According to Bombs Away's 2024 Franchise Disclosure Document, a franchisee may be required to pay liquidated damages under specific circumstances related to the termination of the franchise agreement. If Bombs Away terminates the Franchise Agreement due to the franchisee's default, or if the franchisee attempts to terminate the agreement without proper cause as defined in section 14.1, the franchisee is obligated to pay liquidated damages to Bombs Away.
The liquidated damages are calculated as a lump sum, not considered a penalty. The amount is determined by multiplying two factors: (x) the average Royalty Fees and Marketing Fund Contributions owed by the franchisee to Bombs Away for the 12-month period preceding the date the franchisee ceased operating the business, and (y) the lesser of 24 or the number of months remaining in the current term of the Franchise Agreement. This calculation aims to compensate Bombs Away for the anticipated future revenue they would have received had the agreement not been terminated prematurely.
If the Bombs Away franchisee has not operated the business for at least 12 months, the calculation of factor (x) will be based on the average Royalty Fees and Marketing Fund Contributions owed during the actual period the franchisee was in operation. The franchisee is required to pay the liquidated damages within 10 days of the termination of the agreement. This clause ensures that Bombs Away receives compensation for lost future revenue in the event of a default or unpermitted termination by the franchisee.