What is the maximum length of the 'Damages Period' for royalty fee payments following the termination of a Carls franchise agreement due to franchisee default?
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 requires the franchisee to pay a royalty fee as damages for a period called the "Damages Period." This period extends from the termination date to the earlier of two dates.
The first potential end date for the Damages Period is the 3-year anniversary of the termination date. The second is the date on which the initial term of the franchise agreement was originally scheduled to expire. Therefore, the maximum length of the Damages Period is three years from the termination date.
This royalty fee is calculated based on the average weekly royalty fee owed by the franchisee during the 52-week period before the termination date, multiplied by the number of weeks in the Damages Period. It's important to note that this obligation to pay the royalty fee survives the termination of the agreement and is in addition to any other obligations the franchisee has under Section 20.C of the agreement following termination.