Under what circumstances are Lost Revenue Damages applicable for a Cream franchise?
Cream Franchise · 2025 FDDAnswer from 2025 FDD Document
If we terminate this Agreement because of your breach or if you terminate this Agreement without cause, you and we agree that it would be difficult, if not impossible, to determine the amount of damages that we would suffer due to the loss or interruption of the revenue stream we otherwise would have derived from your continued payment of Royalties, and that the Brand Fund would have otherwise derived from your continued contributions to those funds, through the remainder of the Term. Therefore, you and we agree that a reasonable estimate of such damages, less any cost savings we might have experienced (the "Lost Revenue Damages") is an amount equal to the net present value of the Royalties and Brand Fund Contributions that would have become due had this Agreement not been terminated, from the date of termination, to the earlier of (1) the 2nd anniversary of the termination date; or (2) the scheduled expiration of the Term. For the purposes of this Section, Royalties and Brand Fund Contributions will be calculated based on the average monthly Net Sales of your Shop during the 12 full calendar months immediately preceding the last date of regular operations of your Shop; provided, that if as of such date your Shop has not been operating for at least 12 months, Royalties and Brand Fund Contributions will be calculated based on the average monthly Net Sales of all Jeni's Ice Creams Scoop Shops operating under the Marks during our last fiscal year.
You agree to pay us Lost Revenue Damages within 30 days after this Agreement is terminated. You and we agree that the calculation described in this Section is a calculation only of the Lost Revenue Damages and that nothing herein shall preclude or limit us from proving and recovering any other damages caused by your breach of the Agreement.
Source: Item 23 — RECEIPTS (FDD pages 61–192)
What This Means (2025 FDD)
According to the 2025 FDD, Cream outlines the circumstances under which Lost Revenue Damages are applicable. If the franchise agreement is terminated due to the franchisee's breach, or if the franchisee terminates the agreement without a valid reason, Cream can impose Lost Revenue Damages. These damages are designed to compensate Cream for the anticipated loss of revenue from royalties and brand fund contributions that would have been collected had the agreement remained in effect for its full term.
The calculation of Lost Revenue Damages is based on the net present value of the royalties and brand fund contributions that would have been due. This calculation extends from the termination date up to the earlier of either the second anniversary of the termination date or the originally scheduled expiration of the franchise term. To determine the royalty and brand fund contributions, Cream uses the average monthly net sales of the franchise location over the 12 months immediately preceding the last date of its regular operation. If the franchise has not been operating for at least 12 months, the calculation will be based on the average monthly net sales of all Jeni's Ice Creams Scoop Shops during Cream's last fiscal year.
The franchisee is required to pay these Lost Revenue Damages within 30 days of the termination of the agreement. It is important to note that the calculation specified in the FDD pertains solely to Lost Revenue Damages. Cream retains the right to pursue and recover any other damages resulting from the franchisee's breach of the agreement, meaning that the Lost Revenue Damages do not represent a ceiling on Cream's potential recovery.