Can Casiola hold the franchisee and their owners liable for lost revenues and profits after termination?
Casiola Franchise · 2024 FDDAnswer from 2024 FDD Document
- (3) To hold Franchisee and Franchisee's Owners liable for, and recover from each of them, jointly and severally, lost revenues, profits, and fees including, but not limited to Royalty Fees, Brand Development Fund Fee, Advertising Contributions, and all other fees, revenues and/or expenses that would have been paid to Franchisor, under the terms of this Agreement and throughout the Term of this Agreement, had a breach not occurred and had Franchisor not terminated this Agreement. In calculating and determining the foregoing, Franchisee agrees that in calculating and in determining such damages that it is fair and reasonable to use Franchisee's most recent calendar year Gross Sales in calculating and determining Franchisor lost revenues and fees and by assuming that such Gross Sales would have been earned in each and every year throughout the remainder of the Term had this Agreement not been terminated. If, however, the Franchised Business has been open and in operation for less than one calendar year, Franchisee agrees that it is fair and reasonable to use an average of Casiola Business Gross Sales across the System during the year in which this Agreement was terminated and to use such average Gross Sales for the purpose of calculating and determining Franchisor lost revenues and fees and, in doing so, by assuming that such Gross Sales would have been earned in each and every year throughout the remainder of the Term had this Agreement not been terminated. Franchisee agrees that the foregoing is a form of liquidated damages, and that it is fair and reasonable.
Source: Item 23 — RECEIPTS (FDD pages 47–209)
What This Means (2024 FDD)
According to Casiola's 2024 Franchise Disclosure Document, Casiola has the right to hold both the franchisee and their owners liable for lost revenues and profits if the franchise agreement is terminated due to a breach by the franchisee. This means that if a franchisee violates the terms of the agreement and Casiola terminates the agreement as a result, Casiola can seek to recover the revenues, profits, and fees they would have received had the breach not occurred and the agreement remained in effect for its full term. These fees include, but are not limited to, Royalty Fees, Brand Development Fund Fee, and Advertising Contributions.
The FDD specifies how these lost revenues are calculated. Casiola can use the franchisee's most recent calendar year Gross Sales to project the revenues they would have earned throughout the remainder of the agreement's term. If the business has been open for less than a year, Casiola can use the average Gross Sales of Casiola businesses across the system during the year of termination to make this calculation. The franchisee agrees that using either of these methods is a fair and reasonable way to determine the amount of lost revenues.
This clause essentially acts as a liquidated damages provision, where the franchisee agrees in advance on a method for calculating damages in the event of a breach. This can be a significant financial risk for franchisees, as they could be liable for substantial future revenues that Casiola projects they would have earned. Prospective franchisees should carefully consider this potential liability and seek legal counsel to fully understand the implications before signing the franchise agreement.