Is the Non-Compliance Fee for 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. The document states that Chocolate Fish Franchising may charge a franchisee $500 for any instance of non-compliance with the System Standards or the Franchise Agreement, except for non-payment of fees owed to Chocolate Fish Franchising, if the franchisee fails to correct the issue after 30 days' notice. After this initial period, Chocolate Fish Franchising may charge $250 per week until the franchisee resolves the non-compliance.
The FDD specifies that this fee is a reasonable estimate of Chocolate Fish Coffee's internal costs related to addressing the non-compliance, particularly the personnel time involved. It explicitly states that the fee is not a penalty or an estimate of all potential damages resulting from the franchisee's breach. This distinction is important because penalties are often subject to stricter legal scrutiny and may not be enforceable in some jurisdictions.
This non-compliance fee is in addition to any other rights and remedies Chocolate Fish Coffee may have, including default and termination of the franchise agreement. Therefore, franchisees should be aware that failing to comply with System Standards or the Franchise Agreement can result in significant financial consequences, as well as potential legal repercussions.