Under what circumstances might a Budget franchisee be charged a termination fee?
Budget Franchise · 2025 FDDAnswer from 2025 FDD Document
release will exclude thenexisting litigation between Licensee and Budget or the Related Entities and the then-existing claims of Licensee against Budget or the Related Entities in the ordinary course of business under this Agreement or any other agreement between such parties, which litigation and claims will be
identified in such release. If such conditions are not met within the prescribed time period referred to above prior to the expiration of the current term, such term will expire upon the Expiration Date previously established in accordance with this Paragraph 11.1. Budget agrees to provide Licensee with notice of the approaching expiration of any term and the documentation referenced above sufficiently in advance of such expiration date for Licensee to comply with the renewal provisions of this Paragraph 11.1.
- 11.2 Termination By Licensee. Budget agrees that Licensee may terminate this Agreement, with or without cause, effective one hundred and eighty (180) days after written notice of its election to so terminate is delivered to Budget. However, if, in any calendar month during that one hundred eighty (180) day period: (a) Licensee ceases to operate the Rental Business; or (b) Licensee's Gross Revenue is less than the average monthly Gross Revenue of the Rental Business during the preceding one (1) year period (or during the term of this Agreement if less than one year), then in lieu of the License Fees otherwise payable for the remainder of the one hundred eighty (180) day period, Licensee will pay Budget the Termination Fee. The "Termination Fee" shall equal: (i) six (6) times the amount of the average License Fees, which were payable by Licensee hereunder for the immediately preceding one (1) year period (or during the term of this Agreement if less than one year);
Source: Item 23 — RECEIPTS (FDD pages 80–426)
What This Means (2025 FDD)
According to Budget's 2025 Franchise Disclosure Document, a franchisee may be subject to a termination fee if they elect to terminate the License Agreement with 180 days written notice to Budget. Specifically, if the franchisee ceases to operate the rental business or if the franchisee's gross revenue is less than the average monthly gross revenue during the preceding year (or the term of the agreement if less than one year) during any calendar month of that 180-day period, the termination fee becomes payable. This fee is in lieu of the standard license fees for the remainder of the 180-day period.
The termination fee is calculated as six times the average License Fees payable by the franchisee for the immediately preceding one-year period (or the term of the agreement if less than one year), multiplied by a fraction. The numerator of this fraction is the number of days remaining in the 180-day period after the event (cessation of business or revenue shortfall), and the denominator is 180.
It's important to note that Budget acknowledges that the enforceability of the termination fee might be subject to Minnesota Franchises Law. However, Budget states that it will enforce the terms of the agreement to the maximum extent that the law allows. This means that while the termination fee is part of the agreement, its actual application could be influenced by legal considerations, particularly in Minnesota. Prospective franchisees should be aware of this potential legal challenge and seek legal counsel to understand their rights and obligations fully.
This termination fee structure is designed to protect Budget's interests when a franchisee terminates the agreement early, ensuring that Budget receives some compensation for the lost revenue during the notice period. However, the specific calculation and potential legal challenges make it crucial for franchisees to carefully consider the implications before deciding to terminate the agreement.