Is the non-compliance fee charged by Chocolate Fish Coffee considered a penalty?
Chocolate_Fish_Coffee Franchise · 2024 FDDAnswer from 2024 FDD Document
late Fish Franchising's training program after opening, Chocolate Fish Franchising may charge its then-current training fee. As of the date of this Agreement, the training fee is $350 per day.
- 4.5 Non-Compliance Fee. Chocolate Fish Franchising may charge Franchisee $500 for any instance of non-compliance with the System Standards or this Agreement (other than Franchisee's non-payment of a fee owed to Chocolate Fish Franchising) which Franchisee fails to cure after 30 days' notice. Thereafter, Chocolate Fish Franchising may charge Franchisee $250 per week until Franchisee ceases such non-compliance. This fee is a reasonable estimate of Chocolate Fish Franchising's internal cost of personnel time attributable to addressing the non-compliance, and it is not a penalty or estimate of all dama
Source: Item 23 — RECEIPTS (FDD pages 41–119)
What This Means (2024 FDD)
According to Chocolate Fish Coffee's 2024 Franchise Disclosure Document, the non-compliance fee is not considered a penalty. Chocolate Fish Coffee may charge a franchisee $500 for any instance of non-compliance with the System Standards or the Franchise Agreement, provided the franchisee fails to correct the issue after 30 days' notice. After this initial charge, Chocolate Fish Coffee may then charge $250 per week until the franchisee resolves the non-compliance.
The FDD states that this fee is designed to cover Chocolate Fish Coffee's internal costs related to addressing the non-compliance, specifically personnel time. It clarifies that the fee is not intended as a penalty or a comprehensive estimate of all potential damages resulting from the franchisee's breach of contract.
It's important to note that this non-compliance fee is in addition to any other rights and remedies Chocolate Fish Coffee may pursue, including actions related to default and termination of the franchise agreement. This means that a franchisee could face both the non-compliance fee and further penalties or legal actions if the non-compliance is severe enough to warrant such measures.