Does the Caring Transitions agreement specify that the liquidated damages are not considered a penalty?
Caring_Transitions Franchise · 2025 FDDAnswer from 2025 FDD Document
The parties agree that the full extent of the damages that Franchisor will incur if a Covenantor fails to comply with their obligations under section 3 or 4 is difficult to ascertain, but the parties nevertheless desire certainty in this matter.
Accordingly, if a Covenantor breaches or fails to comply with any of the provisions of section 3 or 4, they shall pay Franchisor, as liquidated damages and not as a penalty, a royalty equal to 15% of the gross amount of all income, sales, salary, wages, fees, dividends, distributions, and other compensation received or earned by Covenantor or any Covered Person, or to which any of those parties becomes entitled, as the result of the breach or noncompliance.
The parties further agree that the royalty required by this paragraph is reasonable in light of the damages that Franchisor will incur.
This payment is not exclusive of any other remedies that Franchisor may have, including equitable remedies, attorneys' fees, and costs.
Source: Item 23 — RECEIPT (FDD pages 49–202)
What This Means (2025 FDD)
According to Caring Transitions' 2025 Franchise Disclosure Document, the agreement explicitly states that liquidated damages are not considered a penalty. Specifically, if a franchisee (or "Covenantor") breaches obligations related to certain covenants, they must pay Caring Transitions liquidated damages. These damages are calculated as a royalty equal to 15% of the gross amount of all income, sales, salary, wages, fees, dividends, distributions, and other compensation received or earned by the franchisee (or any related person) as a result of the breach.
The agreement emphasizes that this royalty payment is intended as liquidated damages and not a penalty. It also states that the parties agree that determining the full extent of damages from a breach is difficult to ascertain, which is why they desire certainty through this liquidated damages provision. Furthermore, the agreement specifies that the royalty required is considered reasonable in light of the damages Caring Transitions will incur.
This clause is not exclusive of other remedies Caring Transitions may pursue, including equitable remedies, attorneys' fees, and costs. This means that in addition to the liquidated damages, Caring Transitions retains the right to seek other forms of legal recourse. Prospective franchisees should understand that breaching the specified covenants could result in significant financial consequences, as well as potential legal action beyond the liquidated damages.