Does the Caring Transitions agreement state that the liquidated damages are 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. The document clarifies that determining the full extent of damages the Franchisor would incur from a Covenantor's failure to comply with obligations is difficult to ascertain. To provide certainty, the agreement specifies that if a Covenantor breaches obligations, they will pay Caring Transitions liquidated damages, which are explicitly stated not to be a penalty.
The liquidated damages are defined 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 Covenantor or any Covered Person as a result of the breach or noncompliance. The agreement emphasizes that this royalty is considered reasonable in relation to the damages Caring Transitions will incur.
This payment of liquidated damages is not the only recourse available to Caring Transitions. The agreement states that Caring Transitions may pursue other remedies, including equitable remedies, attorneys' fees, and costs, in addition to receiving the liquidated damages. This provision ensures that Caring Transitions is fully compensated for any losses resulting from a breach of the agreement.