What is the Circle K Franchisee's obligation to pay Liquidated Damages upon termination of the agreement?
Circle_K Franchise · 2025 FDDAnswer from 2025 FDD Document
nchisor may simultaneously constitute a default by Franchisee under this Agreement notwithstanding that at such time Franchisee may be fully and promptly performing its obligations hereunder.
- 14.7 Rights and Obligations upon Expiration or Termination. Upon expiration or termination of this Agreement for any reason, Franchisee will:
- (A) within five (5) days, pay all Royalty Fees, Promotional Fees, and any other amounts owed to Franchisor, suppliers, or vendors, including the outstanding principal amounts and accrued interest on any notes or evidences of indebtedness of Franchisee payable to Franchisor or any Affiliates. The payment to Franchisor of all amounts owing will be accelerated on all debt obligations which had been the subject of payment schedules even if payment was then being made promptly according to the agreed schedule. Franchisee hereby grants to Franchisor a lien and security interest against any and all personal property, equipment, and fixtures owned by Franchisee and used in connection with the Store as security for the payment of such obligations;
- (B) immediately pay, as fair and reasonable liquidated damages ("Liquidated Damages"), an amount equal to (i) the lesser of (x) 48 or (y) the remaining number of months under the Term, multiplied by (ii) the average monthly Royalty Fee payments (calculated in accordance with Section 5.2) payable by Franchisee hereunder for the 12 months preceding the termination (during which time the Franchisee was in Good Standing under this Agreement), or for a shorter period commencing with the Effective Date of this Agreement if this Agreement is terminated in the first 12 months of the Term. If the Store has never been opened and therefore has no history of Royalty Fee payments, the Liquidated Damages will be calculated based on the average monthly Gross Sales of all Circle K franchisees located in the state where the Franchised
Location is located for the 12-month period immediately preceding the termination. If there are no Circle K franchisees located in such state, the calculation will be based on the average monthly Gross Sales of all Circle K franchisees located in the United States. Notwithstanding the foregoing, in any and all cases, the average monthly Royalty Fee payment amount used in the Liquidated Damages calculation shall be no less than $1,000 since that is the minimum required monthly Royalty Fee. Franchisor and Franchisee acknowledge and agree that the termination of this Agreement will result in Franchisor incurring damages based on lost revenues from Royalty Fees and other amounts payable by Franchisee if the Franchised Location is no longer a Circle K Store, and that it will be difficult to calculate with certainty the amount of damages Franchisor will incur. The provisions of this Section 14.7(B) do not apply if the Agreement expires at the end of its initial Term or is terminated due to (i) Franchisee's (or if Franchisee is an entity, Principal Equity Holder's) death;
Source: Item 22 — CONTRACTS (FDD page 100)
What This Means (2025 FDD)
According to Circle K's 2025 Franchise Disclosure Document, franchisees may be obligated to pay liquidated damages upon termination of the franchise agreement. These liquidated damages are considered fair and reasonable compensation to Circle K for lost revenues resulting from the termination, as calculating the exact amount of damages can be difficult.
The liquidated damages are calculated as the lesser of 48 months or the remaining number of months under the franchise term, multiplied by the average monthly royalty fee payments. This average is based on the 12 months preceding the termination, assuming the franchisee was in good standing. If the agreement is terminated within the first 12 months, the calculation uses the average monthly royalty fee payments from the period leading up to termination.
If the Circle K store has not yet opened and therefore has no royalty fee payment history, the liquidated damages will be based on the average monthly gross sales of all Circle K franchisees in the state where the franchised location is situated for the 12-month period before termination. If there are no Circle K franchisees in that state, the calculation will be based on the average monthly gross sales of all Circle K franchisees in the United States. In any case, the average monthly royalty fee used in the liquidated damages calculation will not be less than $1,000, which is the minimum required monthly royalty fee. There are some exceptions where the franchisee will not have to pay liquidated damages such as death, incapacity, condemnation, destruction of the location, failure to secure permits, or Circle K withdrawing from marketing in the area.