Are Checkersrallys' Early Termination Damages considered a penalty?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
16.06 Early Termination Damages. If we terminate this Agreement as a result of your breach, you and we agree that the amount of damages which we would incur for any such early termination would be difficult, if not impossible, to accurately ascertain. Accordingly, within 30 days following such termination, you shall pay us an amount equal to the average monthly royalty fees and advertising contributions that you owed to us for the past 24 months multiplied by the number of months remaining in the Term ("Early Termination Damages"). If you have not operated the Franchised Restaurant for 24 months prior to the termination of this Agreement, the Early Termination Damages will be calculated by using the average monthly royalties and advertising contributions you owed for the number of months that the Franchised Restaurant operated multiplied by the number of months remaining in the Term. These Early Termination Damages shall constitute liquidated damages and are not to be construed as a penalty and shall be the joint and several liability of you and each of your Owners who personally guarantees your obligations under this Agreement.
The parties acknowledge and agree that: (a) the Early Termination Damages are a reasonable estimation of the damages that we would incur if this Agreement is prematurely terminated; and (b) your payment of such Early Termination Damages is intended to fully compensate us only for any and all damages related to or arising out of our premature termination of this Agreement, and shall not constitute an election of remedies, waiver of any default under this Agreement, nor waiver of our claim for other damages and/or equitable relief arising out of your breach of this Agreement.
The imposition of Early Termination Damages shall be at our sole option. We are not required to impose Early Termination Damages and may, in addition or in lieu thereof, pursue other remedies available to us under the terms and conditions of this Agreement, in equity or at law in the event of your breach under this Agreement, including, without limitation, actual damages we incur, if such can be ascertained. All such remedies shall be cumulative and non-exclusive
Source: Item 22 — CONTRACTS (FDD pages 91–92)
What This Means (2025 FDD)
According to Checkersrallys' 2025 Franchise Disclosure Document, the Early Termination Damages are explicitly stated not to be construed as a penalty. If Checkersrallys terminates the agreement due to the franchisee's breach, the franchisee must pay Early Termination Damages within 30 days. These damages are calculated based on the average monthly royalty fees and advertising contributions owed for either the past 24 months or, if the restaurant has been operating for less than 24 months, the number of months it has been in operation, multiplied by the number of months remaining in the franchise term.
The document clarifies that these Early Termination Damages are considered a reasonable estimation of the damages Checkersrallys would incur due to the premature termination of the agreement. The payment is intended to compensate Checkersrallys fully for damages arising from the termination and does not represent a waiver of any default or claim for other damages or equitable relief resulting from the franchisee's breach.
It's important to note that imposing Early Termination Damages is at Checkersrallys' sole option. Checkersrallys is not obligated to impose these damages and may instead pursue other remedies available under the agreement or at law, including actual damages if they can be ascertained. All remedies available to Checkersrallys are cumulative and non-exclusive.