Does the Cinnaholic agreement specify any exceptions to the obligation to pay liquidated damages upon termination?
Cinnaholic Franchise · 2025 FDDAnswer from 2025 FDD Document
not been open for at least two years, the average monthly amount of Royalty Fees payable by Franchisee to Franchisor for the months in which the Bakery has been open multiplied by 12;
- (ii) multiplied by two; however, if the Franchise Agreement term has less than two years remaining, then multiply by the number of years (or portions of a year) remaining in the term.
Franchisee acknowledges that its obligation to pay Franchisor liquidated damages is in addition to, not in lieu of, Franchisee's obligations to pay other amounts due to Franchisor under this Agreement up to the date of termination and to strictly comply with any other post-termination obligations required hereunder. Should any valid, applicable law or regulation of a competent governmental authority having jurisdiction over this Agreement limit Franchisee's ability to pay, and Franchisor's ability to receive, such liquidated damages, Franchisee shall be liable to Franchisor for any and all damages which it incurs, now or in the future, as a result of Franchisee's default under this Agreement.
22.2. Obligations upon Termination or Expiration.
Source: Item 22 — CONTRACTS (FDD pages 61–62)
What This Means (2025 FDD)
According to the 2025 Cinnaholic Franchise Disclosure Document, the franchisee's obligation to pay liquidated damages is in addition to other amounts owed to Cinnaholic up to the termination date and compliance with post-termination obligations. However, if any valid law or regulation limits the franchisee's ability to pay or Cinnaholic's ability to receive such liquidated damages, the franchisee is liable for all damages Cinnaholic incurs due to the franchisee's default. This means that while liquidated damages are generally required upon termination for default, there may be exceptions based on legal limitations.
Specifically, Minnesota Statute 80C.21 and Minnesota Rule 2860.4400(J) prohibit Cinnaholic from requiring the franchisee to consent to liquidated damages. Additionally, the Illinois Franchise Disclosure Act stipulates that any condition purporting to bind any person acquiring any franchise to waive compliance with the Illinois Franchise Disclosure Act or any other law of Illinois is void.
These stipulations mean that the standard liquidated damages clause may not be enforceable in certain states like Minnesota and Illinois, or where it conflicts with local laws. Prospective franchisees should consult with a legal professional to understand the specific implications of these clauses in their state and how they might affect their obligations upon termination of the franchise agreement.