Is the liquidated damages fee of $10,000 for Browns Chicken considered a penalty or forfeiture?
Browns_Chicken Franchise · 2025 FDDAnswer from 2025 FDD Document
the right pending the closing of such purchase to appoint a manager to maintain the operation of the Store in accordance with the relevant provisions of Paragraph 10.I. hereof. Alternatively, Brown may require Franchisee to close the Store during such time period without removing any assets of the Store.
H. Liquidated Damages for Specific Events of Breach.
In the event Franchisee (i) abandons the Store, which for purposes of this Section is failing to open or operate the Store for more than three (3) consecutive days, or (ii) transfers an interest in the Store or the ownership of Franchisee or of the assets of Franchisee or the Store (or any interest therein) without fully complying with Paragraph 22.C. of this Agreement, whether or not Brown terminates this Agreement, Brow
Source: Item 22 — Contracts (FDD page 43)
What This Means (2025 FDD)
According to Browns Chicken's 2025 Franchise Disclosure Document, the liquidated damages are not considered a penalty or forfeiture. The FDD specifies that Browns Chicken has the right to impose liquidated damages of $10,000 if a franchisee abandons the 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 ownership without complying with the agreement.
Browns Chicken states that this $10,000 payment is a reasonable measure of damages, especially when the exact amount of actual damages would be difficult to determine. This clause aims to protect Browns Chicken from losses incurred due to a franchisee's breach of contract in specific situations, such as abandonment or unauthorized transfer of ownership.
This means that if a Browns Chicken franchisee violates the terms related to store operation or ownership transfer, they will be required to pay $10,000 to Browns Chicken. It is important for prospective franchisees to understand these conditions and ensure they comply with the franchise agreement to avoid incurring these liquidated damages.