How are the liquidated damages calculated for a Buona franchise if the agreement is terminated early?
Buona Franchise · 2025 FDDAnswer from 2025 FDD Document
| Type of Fee | Amount | Due Date | Remarks |
|---|---|---|---|
| Liquidated Damages | The number of months remaining in the term times the average Gross Sales for the past 36 months (or lesser period if you have not operated for 36 months), times 4% (the royalty rate) times the present value factor based on an interest rate of 4% per year. For a Dual Brand Business, the applicable royalty rate for the Gross Sales from each Brand will be applied in the calculation. | Upon demand | We may impose liquidated damages if you terminate the Franchise Agreement, we terminate you for material breach of the Franchise Agreement, you abandon the Franchised Business or you make an unauthorized transfer of interests in Franchisee or the assets of the Franchised Business. |
Source: Item 6 — OTHER FEES (FDD pages 16–23)
What This Means (2025 FDD)
According to Buona's 2025 Franchise Disclosure Document, liquidated damages may be imposed if the franchisee terminates the Franchise Agreement, if Buona terminates the agreement due to the franchisee's material breach, if the franchisee abandons the Franchised Business, or if the franchisee makes an unauthorized transfer of interests in the Franchisee or the assets of the Franchised Business.
The liquidated damages are calculated by multiplying the number of months remaining in the franchise term by the average Gross Sales for the past 36 months (or a lesser period if the franchise has not been operating for 36 months). This figure is then multiplied by 4% (the royalty rate) and then by the present value factor based on an annual interest rate of 4%. For a Dual Brand Business, the applicable royalty rate for the Gross Sales from each Brand will be applied in the calculation.
In simpler terms, Buona aims to recoup the royalty fees they would have collected had the franchise continued operating for the remainder of its term. The present value calculation adjusts for the time value of money, recognizing that money received in the future is worth less than money received today. The use of a 4% interest rate for this calculation is specified in the FDD. This calculation provides a standardized way for Buona to assess damages resulting from early termination, abandonment, or unauthorized transfer, ensuring some level of compensation for the lost future revenue stream. Prospective franchisees should carefully consider these potential costs and seek legal counsel to fully understand the implications before signing the Franchise Agreement.