Is the C3 Wellness Spa Royalty Fee an ongoing obligation?
C3_Wellness_Spa Franchise · 2024 FDDAnswer from 2024 FDD Document
5.B. ROYALTY FEES
Royalty Fee: Throughout the Term of this Agreement, Franchisee shall pay to Franchisor a continuing weekly non-refundable royalty fee (the "Royalty Fee") in an amount equal to 6% (the "Royalty Rate") of Franchisee's weekly Gross Sales throughout the Term of this Agreement. Without limitation to the foregoing, Franchisee agrees that if the Franchised Business is operated as a Spa Management Business that the Gross Sales shall not be limited to sales and revenue related to the Spa Facility and Management Services but, shall also include, among other things, Gross Sales related to the Spa Location Franchise including sales and revenues from the Approved Spa Products and Services.
Notwithstanding the foregoing, Franchisor and Franchisee further agree that if any federal, state, and/or local government agency, entity, law, rule and/or regulation, and/or any court order or order from any legal proceeding prohibits and/or invalidates, Franchisee's payment of royalty fees based on Gross Sales related to services and/or products related to and/or associated with services performed by and/or administered by an Authorized Care Provider and/or the Franchised Business, then Franchisor, at Franchisor's election and in Franchisor's sole discretion, may either:
- (a) increase the Royalty Rate, as applied to the permissible portion of the Gross Sales that is not otherwise restricted or prohibited, to a rate determined by Franchisor so that the net dollar amount of the Royalty Fees paid by Franchisee to Franchisor shall not be less than the Royalty Fees that Franchisor would have received had the federal, state, and/or local government agency, entity, law, rule and/or regulation not prohibited Franchisee's payment of royalty fees based on Gross Sales related to a restricted activity; or
- (b) modify the Royalty Fee to a fixed fee Royalty Fee to be charged to and paid by Franchisee to Franchise in accordance with the following schedule (the "Franchisor's Optional Fixed Fee Royalty Fee"):
Source: Item 23 — RECEIPTS (FDD pages 59–293)
What This Means (2024 FDD)
According to C3 Wellness Spa's 2024 Franchise Disclosure Document, the Royalty Fee is indeed an ongoing obligation. Throughout the term of the Franchise Agreement, the franchisee is required to pay a continuing weekly non-refundable royalty fee. This Royalty Fee is calculated as 6% of the franchisee's weekly Gross Sales.
Notably, if the C3 Wellness Spa is operated as a Spa Management Business, the Gross Sales calculation isn't limited to revenue from the Spa Facility and Management Services. It also includes Gross Sales related to the Spa Location Franchise, encompassing sales and revenues from Approved Spa Products and Services.
However, there's a contingency: if any governmental agency or legal proceeding prohibits royalty fees based on Gross Sales related to services performed by an Authorized Care Provider, C3 Wellness Spa has the option to either increase the Royalty Rate on the permissible portion of Gross Sales or modify the Royalty Fee to a fixed fee. This ensures that C3 Wellness Spa still receives the intended royalty amount, even if certain revenue streams are excluded from the percentage-based calculation.