Under what circumstances can Buona impose liquidated damages against a franchisee?
Buona Franchise · 2025 FDDAnswer from 2025 FDD Document
- 24.11 Liquidated Damages.
Franchisor shall have the right to impose liquidated damages against Franchisee in the following events: (a) Franchisee terminates this Agreement without good cause, (b) Franchisor terminates this Agreement based on Franchisee's material breaches under this Agreement, (c) Franchisee abandons the Franchised Business, which for purposes of this Section is failing to open or operate the Franchised Business for more than two (2) consecutive days, (d) loses possession of the premises of the Franchised Business and fails to find a new location and to re-open the Franchised Business or (e) Franchisee transfers an interest in the Franchised Business or the ownership of Franchisee or of the assets of Franchisee or the Franchised Business (or any interest therein) without fully complying with Article XV of this Agreement, whether or not Franchisor terminates this Agreement.
The amount of
liquidated damages shall be equal to (i) the number of months remaining in the term of this Agreement, times (ii) the average Gross Sales of Franchisee's Franchised Business for each Brand during the thirty-six (36) month period immediately preceding the date of termination (or if Franchisee has been in business less than 36 months, then during the entire period Franchisee has been in business), times (iii) the applicable royalty rate for the Gross Sales for each respective Brand as provided in Section 3.2 herein times (iv) the present value factor based on an interest rate of four percent (4%) per year (4/12% per month), using the Present Value of an Annuity. This remedy is in addition to Franchisor's other rights and remedies set forth in this Agreement. The liquidated damages are not a penalty or forfeiture, but are a reasonable measure of damages where the exact amount of actual damages would be difficult to ascertain. Franchisee also agrees to pay Franchisor's costs and attorney's fees in connection with enforcing this Liquidated Damages provision.
Source: Item 22 — CONTRACTS (FDD page 78)
What This Means (2025 FDD)
According to Buona's 2025 Franchise Disclosure Document, Buona has the right to impose liquidated damages against a franchisee under specific circumstances. These circumstances include if the franchisee terminates the agreement without good cause, if Buona terminates the agreement due to the franchisee's material breaches, or if the franchisee abandons the franchised business by failing to open or operate it for more than two consecutive days. Liquidated damages may also be imposed if the franchisee loses possession of the premises and fails to find a new location and reopen, or if the franchisee transfers an interest in the franchised business without complying with Article XV of the agreement, regardless of whether Buona terminates the agreement.
The liquidated damages will be calculated based on a formula that considers several factors. These factors are (i) the number of months remaining in the term of the agreement, (ii) the average Gross Sales of the franchisee's business for each Brand during the 36-month period immediately preceding the termination date (or the entire period if the franchisee has been in business for less than 36 months), (iii) the applicable royalty rate for the Gross Sales for each respective Brand, and (iv) a present value factor based on an annual interest rate of four percent. Buona states that this remedy is in addition to its other rights and remedies outlined in the agreement and clarifies that the liquidated damages are not a penalty but a reasonable measure of damages when the exact amount of actual damages is difficult to determine.
Furthermore, the franchisee is responsible for covering Buona's costs and attorney's fees associated with enforcing the liquidated damages provision. This means that in addition to the liquidated damages themselves, a franchisee could incur further expenses if Buona has to take legal action to enforce the provision. Prospective franchisees should carefully consider these potential financial implications and seek legal counsel to fully understand their obligations and potential liabilities under the franchise agreement.