What is the relationship between the liquidated brand damages Chesters can charge (Item 7) and the non-competition restrictions mentioned in Item 7 and Item 12?
Chesters Franchise · 2025 FDDAnswer from 2025 FDD Document
| Type of fee* | Amount | Due Date | Remarks |
|---|---|---|---|
| Indemnification | Will vary under circumstances | As incurred | You must reimburse us if we are held liable for claims from your Restaurant's operation or incur costs in defending them. |
| Liquidated Brand | $10,000 | As incurred | Due if you or your owners violate non-competition restrictions described in Items 17(q) and (r). |
| Damages |
For each violation of this restriction on the operation of a Competitive Business, you acknowledge that we will suffer substantial Brand Damages. "Brand Damages" means, among other things, lost market penetration and goodwill, loss of CHESTER'S Restaurant representation in the Location's market area, customer confusion, lost opportunity costs, and expenses that we will incur in developing or finding another operator to develop another CHESTER'S Restaurant in the Location's market area. We and you acknowledge that Brand Damages are difficult to estimate accurately, and proof of Brand Damages would be burdensome and costly, although such damages are real and meaningful to us. Therefore, for each violation of the restriction on the operation of a Competitive Business, you must pay us in a lump sum, on or before the date we specify, liquidated damages equal to Ten-Thousand Dollars ($10,000). Payment is due by credit card or ACH transfer. You agree that these liquidated damages represent the best estimate of our Brand Damages arising from each violation of the restriction on the operation of a Competitive Business. Your payment of the liquidated damages to us will not be considered a penalty but, rather, a reasonable estimate of fair compensation to us for the Brand Damages we will incur. You acknowledge that your payment of liquidated damages is full compensation to us only for the Brand Damages and is in addition to, and not in lieu of, your obligations to pay other amounts due to us under this Agreement and to comply strictly with all other contractual obligations.
You may use only the Marks we designate and may use them only in the manner we authorize.
Your right to use the Marks ends automatically when this Agreement expires or is earlier terminated.
What This Means (2025 FDD)
According to Chesters's 2025 Franchise Disclosure Document, the liquidated brand damages are directly related to violations of non-competition restrictions. Chesters charges $10,000 as liquidated damages if a franchisee or their owners violate the non-competition restrictions outlined in Items 17(q) and (r) of the franchise agreement. These damages are intended to compensate Chesters for losses such as diminished market presence, goodwill erosion, and the costs associated with finding a new operator in the area.
Chesters defines "Brand Damages" as encompassing lost market penetration and goodwill, loss of CHESTER'S Restaurant representation in the Location's market area, customer confusion, lost opportunity costs, and expenses that Chesters will incur in developing or finding another operator to develop another CHESTER'S Restaurant in the Location's market area. The FDD states that these damages are difficult to estimate accurately, making liquidated damages a practical approach. The franchisee agrees that the $10,000 payment represents a reasonable estimate of these damages and is not considered a penalty.
It's important to note that the liquidated damages cover only the Brand Damages and are in addition to any other amounts the franchisee owes to Chesters under the franchise agreement. Item 12 of the FDD discusses the franchisee's obligation to only use Chesters' designated marks in an authorized manner, and that this right terminates when the agreement expires or is terminated. While Item 12 outlines the use of Chesters' marks, the liquidated damages described in Item 6 are specifically tied to violations of the non-competition restrictions detailed in Items 17(q) and (r), not Item 12. Prospective franchisees should carefully review Items 17(q) and (r) to fully understand the scope of these restrictions and the potential financial consequences of violating them.