Under what circumstances does a Caring Transitions franchisee have to pay liquidated damages to the franchisor?
Caring_Transitions Franchise · 2025 FDDAnswer from 2025 FDD Document
r willful misconduct of Franchisor's employees).
13.5 Liquidated Damages.
- (a) If Franchisor terminates this agreement before the Expiration Date due to a default by Franchisee (including its abandonment of the Franchised Business), or if Franchisee terminates this agreement before the Expiration Date (which will also constitute a default under this agreement), Franchisee shall pay Franchisor, within fifteen days after the effective date of the termination and in addition to the other amounts specified in Article 5 and section 14.1(j), liquidated damages equal to the average monthly Royalty and Branding Fee payable by Franchisee during the twelve months immediately preceding the effective date of the termination, multiplied by the number of months between the effective date of the termination and the Expiration Date.
- (b) Franchisor and Franchisee acknowledge and agree that it would be impracticable to precisely determine the amount of damages Franchisor will incur as a result of this agreement's early termination. Some of those damages include loss of Royalties and Branding Fees, loss of goodwill, loss of representation in the market, consumer confusion, and expenses that Franchisor will incur to recruit, train and support a new franchisee for the market (collectively, "Brand Damages"). Franchisor and Franchisee acknowledge that Brand Damages are difficult to estimate accurately, and proof of Brand Damages would be burdensome and costly, although such damages are real and meaningful to Franchisor. Franchisor and Franchisee agree that this liquidated damages provision is a reasonable, good faith pre-estimate of those damages. Franchisee's payment of the liquidated damages to Franchisor will not be considered a penalty but, rather, a reasonable estimate of fair compensation to Franchisor for the Brand Damages it will incur because this agreement did not continue for the full length of the Initial Term due to Franchisee's default. Franchisee acknowledges that its payment of liquidated damages is full compensation to Franchisor only for the Brand Damages resulting from the early termination of this agreement and is in addition to, and not in lieu of, Franchisee's obligations to pay other amounts due Franchisor under this agreement as of the effective date of the termination, and to comply strictly with the Post-Termination Provisions. Franchisee further acknowledge that this liquidated damages provision does not cover any other damages to which Franchisor might be entitled as a result of Franchisee's actions or inaction.
- 13.6 Liability for Breach. If Franchisee fails to cure any breach within the applicable time period set forth in Section 13.2 above, Franchisee shall pay to Franchisor all damages, costs and expenses incurred by Franchisor as a result of any such breach, including, but not limited to, reasonable attorney and accounting fees. This provision shall apply regardless of whether or not Franchisor exercises its right to terminate this Agreement.
ARTICLE 14
OBLIGATIONS UPON TERMINATION
- 14.1 Franchisee's Obligations.
Source: Item 20 — OUTLETS AND FRANCHISEE INFORMATION (FDD pages 41–49)
What This Means (2025 FDD)
According to Caring Transitions' 2025 Franchise Disclosure Document, a franchisee may be required to pay liquidated damages under specific circumstances related to early termination or breaches of the franchise agreement. If Caring Transitions terminates the agreement before its expiration date due to the franchisee's default, including abandonment of the franchised business, or if the franchisee terminates the agreement before the expiration date, the franchisee must pay liquidated damages to Caring Transitions. These damages are in addition to other amounts specified in Article 5 and section 14.1(j) of the agreement.
The liquidated damages are calculated as the average monthly Royalty and Branding Fee payable by the franchisee during the twelve months immediately preceding the termination date, multiplied by the number of months remaining between the termination date and the original expiration date of the agreement. Caring Transitions and the franchisee acknowledge that precisely determining the exact amount of damages resulting from early termination is impractical, hence the use of this calculation method. The types of damages considered include loss of Royalties and Branding Fees, loss of goodwill, loss of market representation, consumer confusion, and the expenses Caring Transitions incurs to recruit, train, and support a new franchisee for the market, collectively referred to as "Brand Damages."
The FDD states that the payment of liquidated damages is not considered a penalty but rather a reasonable estimate of fair compensation to Caring Transitions for the Brand Damages it will incur due to the agreement not continuing for its full term because of the franchisee's default. The franchisee's payment of liquidated damages is full compensation to Caring Transitions only for the Brand Damages resulting from the early termination of the agreement. It is in addition to, and not in lieu of, the franchisee's obligations to pay other amounts due to Caring Transitions under the agreement as of the termination date and to comply strictly with the Post-Termination Provisions. This liquidated damages provision does not cover any other damages to which Caring Transitions might be entitled as a result of the franchisee's actions or inaction.
Additionally, if a Caring Transitions franchisee breaches any provisions related to post-termination covenants, particularly those concerning non-competition, they may be liable for liquidated damages. Specifically, if the franchisee violates the restrictions on operating a similar business or soliciting clients within a defined territory and timeframe after the franchise agreement ends, they will be required to pay Caring Transitions liquidated damages. These damages are intended to compensate Caring Transitions for the harm caused by the franchisee's breach of the non-compete agreement and are not considered a penalty.