How does Cinnabon calculate liquidated damages if the franchise agreement is terminated after the Opening Date?
Cinnabon Franchise · 2025 FDDAnswer from 2025 FDD Document
Any termination of this Agreement before the expiration of the Term will deprive us of the benefit of the bargain we are entitled to receive under this Agreement. As a result, if this Agreement is terminated after the Opening Date, you will pay us, as liquidated damages for the loss of the benefit of the bargain we are entitled to receive, and not as a penalty, a lump-sum payment equal to the average amount you paid per month to purchase Proprietary Goods during the 36 months before the termination date times the lesser of the remainder of the Term or 36 months. If less than 36 months have lapsed between the Opening Date and the termination date, the liquidated damages will be the average amount you paid per month to purchase Proprietary Goods during the time between the Opening Date and the termination date, multiplied by 36. If the termination occurs before the Opening Date, you will forfeit the Initial Franchise Fee paid and will not owe us any liquidated damages.
Source: Item 23 — Receipts (FDD pages 114–399)
What This Means (2025 FDD)
According to Cinnabon's 2025 Franchise Disclosure Document, if the franchise agreement is terminated after the Opening Date, Cinnabon calculates liquidated damages based on the average amount the franchisee paid per month to purchase Proprietary Goods. This calculation aims to compensate Cinnabon for the loss of the benefit of the bargain they were entitled to under the agreement, and it is not intended as a penalty.
The liquidated damages are calculated as a lump-sum payment. This payment is equal to the average monthly amount the franchisee paid for Proprietary Goods during the 36 months preceding the termination date, multiplied by the lesser of the remaining term of the agreement or 36 months. If the franchise has been open for less than 36 months at the time of termination, the calculation uses the average monthly payments for Proprietary Goods during the actual time the franchise was open, multiplied by 36.
For a prospective Cinnabon franchisee, this means that early termination of the franchise agreement can result in a significant financial obligation. The amount owed will depend on the franchisee's purchasing volume of Proprietary Goods and the length of the remaining term. It is important to note that if the termination occurs before the Opening Date, the franchisee will forfeit the Initial Franchise Fee but will not owe any liquidated damages. This liquidated damages clause is typical in franchising to protect the franchisor's investment and expected returns.