How is the liquidated damages amount calculated for a Carvel franchise if the agreement is terminated after the Opening Date?
Carvel Franchise · 2025 FDDAnswer from 2025 FDD Document
ill not be unreasonably withheld and will be subject to the following conditions. You must:
- A. Cure the default that led to the termination of this Agreement;
- B. Pay us all fees due us, including Royalty Fees and Advertising Contributions;
- C. Pay us a fee to compensate us for your continued use of the Marks during the period of termination equal to the number of days between the date of termination of this Agreement and the date of reinstatement of this Agreement multiplied by the average daily Royalty Fee due to us during the calendar month preceding the date of termination,
- D. Pay us a reinstatement fee of 10% of the amount of the then-current initial franchise fee; and
E. Sign and return to us our standard form of reinstatement agreement that we specify, which will include your commitment to a refurbishment plan that you and we must agree on.
18.3 Liquidated Damages.
- A. Amount. You agree that any termination of this Agreement before the expiration of the Term will deprive us of the benefit of the bargain we are entitled to receive under this Agreement.
Source: Item 23 — Receipts (FDD pages 100–353)
What This Means (2025 FDD)
According to Carvel's 2025 Franchise Disclosure Document, if the Franchise Agreement is terminated after the Opening Date, the franchisee must pay liquidated damages. This is not considered a penalty, but rather compensation for the loss of the benefit Carvel is entitled to receive under the agreement. The liquidated damages are calculated as a lump-sum payment. This payment is equal to the average monthly Royalty Fee the franchisee owed to Carvel during the 36 months before the termination date, multiplied by the lesser of the remainder of the Term or 36 months.
If the period between the Opening Date and the termination date is less than 36 months, the liquidated damages will be the average monthly Royalty Fee during that shorter period, multiplied by 36. However, if the termination occurs before the Opening Date, the franchisee will forfeit the Initial Franchise Fee paid but will not owe any liquidated damages.
The franchisee is required to pay the full amount of liquidated damages within 30 days after the termination date. Carvel also has the right to offset any credits, balances, or amounts they owe to the franchisee against the liquidated damages owed to them.