What is the condition that triggers the liquidated damages payment to Cinnaholic?
Cinnaholic Franchise · 2025 FDDAnswer from 2025 FDD Document
22. EFFECT OF AND OBLIGATIONS UPON TERMINATION
- 22.1. Liquidated Damages. Franchisee acknowledges and confirms that by granting Franchisee the license to operate the Bakery in the Franchise Territory, Franchisor lost the opportunity to grant a franchise for the Franchise Territory to another person or entity or to itself to own and operate a Bakery within the Franchise Territory. Additionally, Franchisee confirms that Franchisor will suffer substantial damages by virtue of the termination of this Agreement, including, without limitation, lost Royalty Fees, lost market penetration and goodwill in the Franchise Territory, lost opportunity costs and the expense Franchisor will incur in developing another franchise for the Franchise Territory, which damages are impractical and extremely difficult to ascertain and/or calculate accurately, and the proof of which would be burdensome and costly, although such damages are real and meaningful to Franchisor and the CINNAHOLIC® System. Accordingly, in the event that Franchisor terminates this Agreement for Franchisee's default hereunder, Franchisee agrees to pay to Franchisor in a lump sum on the effective date of termination, liquidated damages, which represents a fair and reasonable estimate of Franchisor's foreseeable losses as a result of such termination, and which are not in any way intended to be a penalty, in an amount determined as follows:
- (i) the average annual amount of Royalty Fees payable by Franchisee to Franchisor for the two years immediately preceding the date of termination provided, however, if the Bakery has 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.
Source: Item 22 — CONTRACTS (FDD pages 61–62)
What This Means (2025 FDD)
According to the 2025 Cinnaholic Franchise Disclosure Document, a franchisee will be required to pay liquidated damages to Cinnaholic if Cinnaholic terminates the Franchise Agreement due to the franchisee's default. Cinnaholic states that when granting a franchise, they lose the opportunity to grant a franchise to another person or entity, or to itself, to own and operate a Cinnaholic Bakery within the Franchise Territory.
The FDD states that Cinnaholic will suffer substantial damages if the agreement is terminated. These damages include lost Royalty Fees, lost market penetration and goodwill in the Franchise Territory, lost opportunity costs and the expense Cinnaholic will incur in developing another franchise for the Franchise Territory. Cinnaholic states that these damages are impractical and extremely difficult to ascertain and/or calculate accurately, and the proof of which would be burdensome and costly, although such damages are real and meaningful to Cinnaholic.
The liquidated damages are calculated as follows: the average annual amount of Royalty Fees payable by the franchisee to Cinnaholic for the two years immediately preceding the date of termination. However, if the Bakery has 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. This amount is then 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.