For a Cinnabon franchise, how is the liquidated damages amount calculated if the franchise agreement is terminated after the Opening Date but before 36 months have lapsed?
Cinnabon Franchise · 2025 FDDAnswer from 2025 FDD Document
T. Section 18.3.A (Amount) is deleted in its entirety and replaced with the following:
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 the 2025 Cinnabon Franchise Disclosure Document, if the franchise agreement is terminated after the Opening Date but before 36 months have passed, the liquidated damages will be calculated based on the average amount the franchisee paid per month to purchase Proprietary Goods. This average is calculated over the period between the Opening Date and the termination date.
The liquidated damages amount is determined by multiplying this average monthly payment for Proprietary Goods by 36. This means that even if the franchise operated for less than 36 months, the calculation projects the average monthly purchase of Proprietary Goods over a 36-month period to determine the damages.
This calculation serves as a lump-sum payment, intended to compensate Cinnabon for the loss of the benefit they expected to receive over the term of the agreement. It is explicitly stated not to be a penalty but rather a reasonable estimate of the probable loss resulting from the franchisee's default. If the termination occurs before the Opening Date, the franchisee will forfeit the Initial Franchise Fee paid but will not owe any liquidated damages.