What are the 'Liquidated Damages' that the franchisee may have to pay if the Circle K agreement is terminated?
Circle_K Franchise · 2025 FDDAnswer from 2025 FDD Document
e 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; (ii) Franchisee's (or if Franchisee is an entity, Principal Equity Holder's) incapacity for at least 90 consecutive days, in either case which event results in Franchisee's (or if Franchisee is an entity, Principal Equity Holder's) inability to personally operate the Store; (iii) condemnation or other taking, in whole or in part, of the Franchised Location due to eminent domain; (iv) destruction of all or a substantial part of the Franchised Location through no fault of Franchisee; (v) Franchisee's failure to secure the necessary permits for the construction of the Store or (vi) a determination made by Franchisor in good faith and in the normal course of business to withdraw from marketi
Source: Item 22 — CONTRACTS (FDD page 100)
What This Means (2025 FDD)
According to Circle K's 2025 Franchise Disclosure Document, if the franchise agreement is terminated, the franchisee may have to pay liquidated damages. These damages are calculated as the lesser of 48 months or the remaining number of months under the 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 start of the agreement.
If the Circle K store has never opened and lacks a history of royalty fee payments, 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 months before termination. If there are no Circle K franchisees in that state, the calculation will use the average monthly gross sales of all Circle K franchisees in the United States. Regardless of the calculation method, the minimum average monthly royalty fee payment used will be $1,000, representing the minimum required monthly royalty fee.
However, these liquidated damages do not apply if the agreement expires at the end of its initial term or is terminated due to specific circumstances such as the franchisee's death or incapacity, condemnation of the location, destruction of the location without fault, failure to secure necessary permits, or Circle K's decision to withdraw from marketing in the area. If a court deems the liquidated damages payment unenforceable, Circle K can pursue other available remedies, including consequential damages.