What is the basis for the liquidated damages calculation for City Publications franchisees who default?
City_Publications Franchise · 2025 FDDAnswer from 2025 FDD Document
Certain Provisions**
All obligations of Franchisor and Franchisee which expressly or by their nature survive the expiration or termination of this Agreement shall continue in full force and effect subsequent to and notwithstanding their expiration or termination and until satisfied or by their nature expire.
E. Liquidated Damages
If termination is the result of Franchisee's default, Franchisee will pay to Franchisor a lump sum payment (as liquidated damages for causing the premature termination of this Agreement and not as a penalty) equal to the total of all Royalty Fee payments for: (a) the twenty-four (24) calendar months of operation of Franchisee preceding Franchisee's default; (b) the period of time Franchisee has been in operation preceding the notice, if less than twenty-four (24) calendar months, projected on a twenty-four (24) calendar month basis; or (c) any shorter period as equals the unexpired term at the time of termination. The parties agree that a precise calculation of the full extent of the damages that Franchisor will incur on termination of this Agreement as a result of Franchisee's default is difficult and the parties desire certainty in this matter and agree that the lump sum payment provided under this Section is reasonable in light of the damages for premature termination that Franchisor will incur.
Source: Item 23 — RECEIPT (FDD pages 39–129)
What This Means (2025 FDD)
According to City Publications' 2025 Franchise Disclosure Document, if a franchisee defaults and the franchise agreement is terminated, City Publications calculates liquidated damages based on royalty fees. The franchisee must pay a lump sum as liquidated damages, which is not considered a penalty, but rather compensation for the premature termination of the agreement.
The calculation is based on the total royalty fee payments. The calculation considers three scenarios: (a) the royalty fees paid during the 24 months preceding the default, (b) if the franchisee operated for less than 24 months, the calculation projects royalty fees over a 24-month period based on the time they were in operation, or (c) if the unexpired term is shorter than 24 months, the calculation uses the royalty fees for that shorter remaining term.
The FDD states that City Publications and the franchisee agree that precisely calculating the full extent of damages is difficult, and the liquidated damages clause provides certainty. This payment does not exclude City Publications from pursuing other remedies, such as attorneys' fees and costs. However, the FDD also notes that under California Civil Code Section 1671, certain liquidated damages clauses are unenforceable, so franchisees in California should consult with legal counsel.