How is the amount of the royalty fee calculated for the 'Damages Period' after termination of a Carls franchise agreement?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
In addition, if this Agreement is terminated following Franchisee's default, since it would be difficult, if not impossible, to determine the amount of damages that CJR will suffer as a result of Franchisee's breach, unless waived by CJR in its sole discretion, Franchisee immediately shall pay CJR, as damages and not as a penalty, the royalty fee that Franchisee would have paid during the period ("Damages Period") from the effective date of termination to the earlier of: (1) the 3-year anniversary of the effective date of termination; or (2) the date on which the Initial Term was scheduled to expire.
The amount of such royalty fee during the Damages Period will be calculated by multiplying the average weekly royalty fee owed by Franchisee for the 52-week period prior to the effective date of termination by the number of weeks in the Damages Period.
The obligation to pay this royalty fee survives termination of this Agreement and is in addition to, and not in lieu of, Franchisee's obligation to fully comply with its obligations under Section 20.C. following termination of this Agreement.
Source: Item 22 — CONTRACTS (FDD page 80)
What This Means (2024 FDD)
According to Carls's 2024 Franchise Disclosure Document, if the franchise agreement is terminated due to the franchisee's default, Carls can require the franchisee to pay a royalty fee as damages for a period after the termination. This "Damages Period" extends from the termination date to either the 3-year anniversary of the termination or the original expiration date of the franchise agreement, whichever comes first. This royalty fee is not applied if Carls waives it at their discretion.
The amount of the royalty fee during this Damages Period is calculated based on the franchisee's past performance. Specifically, Carls will determine the average weekly royalty fee that the franchisee owed during the 52-week period prior to the termination date. This average weekly royalty fee is then multiplied by the number of weeks in the Damages Period to arrive at the total royalty fee due.
This obligation to pay the royalty fee survives the termination of the agreement. It's important to note that this payment is in addition to, and does not replace, the franchisee's other obligations under Section 20.C of the agreement following termination. This means that even after termination, the franchisee may still have other financial or operational responsibilities to Carls.