What immediate payments are required from the franchisee upon termination or expiration of the Chocolate Bash franchise agreement?
Chocolate_Bash Franchise · 2024 FDDAnswer from 2024 FDD Document
14.3 Effect of Termination. Upon termination or expiration of this Agreement, all obligations that by their terms or by reasonable implication survive termination, including those pertaining to non-competition, confidentiality, indemnity, and dispute resolution, will remain in effect, and Franchisee must immediately:
(i) pay all amounts owed to CB Franchising based on the operation of the Business through the effective date of termination or expiration;
If termination is the result of Franchisee's default, Franchisee will pay to Franchisor a lump sum payment (as liquidated damages for causing the premature termination of this Agreement and not as a penalty) equal to the total of all Royalty Fee payments for: (a) the twenty-four (24) calendar months of operation of Franchisee preceding Franchisee's default; (b) the period of time Franchisee has been in operation preceding the notice, if less than twenty-four (24) calendar months, projected on a twenty-four (24) calendar month basis; or (c) any shorter period as equals the unexpired term at the time of termination. The parties agree that a precise calculation of the full extent of the damages that Franchisor will incur on termination of this Agreement as a result of Franchisee's default is difficult and the parties desire certainty in this matter and agree that the lump sum payment provided under this Section is reasonable in light of the damages for premature termination that Franchisor will incur. This payment is not exclusive of any other remedies that Franchisor may have including attorneys' fees and costs.
Source: Item 22 — CONTRACTS (FDD pages 38–39)
What This Means (2024 FDD)
According to the 2024 Chocolate Bash Franchise Disclosure Document, upon termination or expiration of the Franchise Agreement, the franchisee must immediately pay all outstanding amounts owed to Chocolate Bash that are based on the business's operation through the termination or expiration date. For California franchisees, if the termination results from the franchisee's default, the franchisee must pay Chocolate Bash a lump sum as liquidated damages. This lump sum is equal to the total of all Royalty Fee payments for a specific period.
The calculation of this period depends on how long the franchise has been operating. It will be based on: (a) the 24 calendar months of operation preceding the default, (b) if the operation was less than 24 months, it will be projected on a 24-month basis, or (c) any shorter period that equals the unexpired term at the time of termination. This payment is in addition to any other remedies Chocolate Bash may pursue, including attorney's fees and costs.
This means that franchisees need to be aware that termination, especially due to default, can result in significant immediate financial obligations to Chocolate Bash. The liquidated damages clause, particularly in California, aims to compensate Chocolate Bash for the premature termination of the agreement. Franchisees should carefully consider these potential costs and ensure they understand the conditions under which termination can occur and the associated financial implications.