In the event of termination of the Coffee News franchise agreement, is the franchisee's forfeiture of the non-refundable deposit considered a penalty?
Coffee_News Franchise · 2025 FDDAnswer from 2025 FDD Document
| 17,500 | 17,500 | 17,500 | | | Total other assets | 101,919 | 153,842 | 158,658 | | | Total assets | | $ 192,103 | $ 259,196 | $ 277,059 |
13. BREACH, DEFAULT AND TERMINATION.
- 13.1 Breach by Franchisee. If Franchisee breaches or defaults under any provision of this Agreement, Franchisor shall have all rights and remedies permitted by law or equity, including, but not limited to, the right of termination. Any termination by Franchisor shall have no effect upon Franchisee's obligation to pay the non-refundable deposit due in accordance with subparagraph 2.1 (a) and/or Schedule A. The forfeiture by Franchisee of such non-refundable deposit in the case of termination shall be liquidated damages and not a penalty. For the purposes of this paragraph, a default or breach shall include, but not be limited to, the following:
- (a) Unlicensed Distribution. The printing or distribution of unlicensed or unauthorized issues of the Periodical, either hardcopies or digital versions.
- (b) Similar Publication. The printing, distribution or participation in, directly or indirectly, any publication of a similar type to the Periodical.
- (c) Insolvency. The insolvency, bankruptcy or placement in receivership of Franchisee.
Source: Item 23 — Receipts (FDD pages 36–118)
What This Means (2025 FDD)
According to the 2025 Coffee News Franchise Disclosure Document, if the franchise agreement is terminated, the franchisee's forfeiture of the non-refundable deposit is considered liquidated damages and not a penalty. This applies both when the franchisor terminates the agreement due to the franchisee's breach and when the franchisee terminates the agreement within the initial period covered by the non-refundable deposit.
This means that the non-refundable deposit serves as a pre-agreed amount to cover potential losses or damages the franchisor might incur due to the early termination of the agreement. It's not designed to punish the franchisee but rather to compensate Coffee News for the time, resources, and opportunities lost as a result of the termination.
For a prospective Coffee News franchisee, this highlights the importance of understanding the terms and conditions under which the franchise agreement can be terminated. It also emphasizes the need to carefully consider the initial investment, as the non-refundable deposit will be forfeited if the franchisee decides to terminate the agreement early, regardless of the reason. Franchisees should be aware of the conditions that constitute a breach of contract, potentially leading to termination by Coffee News and the subsequent loss of the deposit.