When does a Caption By Hyatt franchisee incur a royalty fee upon termination, and how is it calculated?
Caption_By_Hyatt Franchise · 2025 FDDAnswer from 2025 FDD Document
pending on when the Franchise Agreement terminates. Upon termination of the Franchise Agreement before the term expires for any reason (subject to Article X of the Franchise Agreement), you must pay us, within 15 days after the date of that termination, liquidated damages in a lump sum equal to (a) the lesser of 36 or the number of months then remaining in the Franchise Agreement term had it not been terminated, multiplied by (b) the sum of (i) the Average Monthly Revenue times 5% for lost future Royalty Fees, plus (ii) the Average Monthly Revenue times 3.5% for lost future System Services Charges. "Average Monthly Revenue" means: (i) if, as of the effective date of termination, at least 36 months have elapsed since the Hotel's opening date, the average monthly Gross Rooms Revenue of the Hotel during the 12 full calendar months preceding the month of termination; or (ii) if, as of the effective date of termination, the Hotel's opening date has not yet occurred, the average monthly Gross Rooms Revenue per available guest room for all Brand Hotels in the United States (including those that we and our affiliates own, manage, and franchise) during the 12 full calendar months preceding the month of termination, multiplied by the number of guest rooms approved for the Hotel; or (iii) if, as of the effective date of termination, the Hotel's opening date has occurred but
less than 36 months have elapsed since the Hotel's opening date, either (a) the amount determined under part (ii) above or (b) the average monthly Gross Rooms Revenue of the Hotel during the period from the Hotel's opening date until the effective date of termination, whichever of (a) or (b) is greater.
However, if "Average Monthly Revenues" as determined under any part of (i) through (iii) above was materially and negatively impacted during the preceding 12 full calendar month period by a disruption in Hotel operations resulting from force majeure, casualty, suspension of operations (whether or not we consented to it), renovation of the Hotel, or any other similar circumstances, then we will determine "Average Monthly Revenue" by referencing the most recent 12 full calendar month period before termination, during which the Hotel performance was not impacted.
If we or you terminate the Franchise Agreement because of a Consequential Termination, then the liquidated damages are 150% of the amount calculated above. A "Consequential Termination" occurs if (1) the Franchise Agreement's termination involves a transfer of the Hotel or its assets, or a direct or indirect Controlling Ownership Interest in you, to a Competitor (defined below); or (2) there are 3 or more franchise agreements for Hyatt-Related Select Service Brand (defined below) hotels with you or your affiliates (including the Franchise Agreement) that we (or our affiliate) terminate because of your (or your affiliate's) default or you (or your affiliates) terminate in breach of the applicable agreement. A "Hyatt-Related Select Service Brand" means any brand under which or in affiliation with which a select service Hyatt Network Hotel operates. A "Competitor" is any entity that owns, franchises and/or manages, or is an affiliate of any entity that owns, franchises and/or manages, a select service hotel brand, trade name or service mark for a system of at least 4 hotels with an average daily room rate for all or substantially all of the hotels in the U.S. during the then most recent full calendar year that is at least 60% of the average daily room rate for Brand Hotels operating in the U.S.
If a governmental agency or other authority condemns or takes by eminent domain or expropriation all or a substantial portion of the Hotel, and we and you do not agree to terms for relocating the Hotel, then either we or you may terminate the Franchise Agreement.
Source: Item 6 — Other Fees (FDD pages 20–36)
What This Means (2025 FDD)
According to the 2025 Caption By Hyatt Franchise Disclosure Document, a franchisee typically pays liquidated damages upon termination of the franchise agreement before its term expires. This payment becomes due within 15 days of the termination date. The liquidated damages are calculated as the lesser of 36 months or the number of months remaining in the franchise agreement, multiplied by the sum of 5% of the Average Monthly Revenue (for lost future Royalty Fees) and 3.5% of the Average Monthly Revenue (for lost future System Services Charges).
The "Average Monthly Revenue" is determined based on the hotel's operational history. If the hotel has been open for at least 36 months as of the termination date, the average is calculated from the 12 full calendar months preceding the month of termination. If the hotel's opening date hasn't occurred yet, the average is based on the average monthly Gross Rooms Revenue per available guest room for all Caption By Hyatt hotels in the United States during the 12 months preceding termination, multiplied by the number of guest rooms approved for the hotel. If the hotel has opened but has been operating for less than 36 months, the calculation uses either the method for hotels open 36+ months or the average monthly Gross Rooms Revenue from the hotel's opening date until termination, whichever is greater.
However, if the Average Monthly Revenues were negatively impacted by events like force majeure, casualty, or renovation, the calculation will reference a 12-month period before termination that wasn't affected by these disruptions. Furthermore, if the termination is considered a "Consequential Termination" (involving a transfer to a competitor or multiple terminated agreements due to default), the liquidated damages increase to 150% of the calculated amount. This complex calculation ensures that Caption By Hyatt is compensated for lost future revenues and services charges, while also accounting for various factors that could affect the hotel's performance and the circumstances of the termination.