Can a Crown Gold Exchange franchisee terminate the agreement and avoid liquidated damages?
Crown_Gold_Exchange Franchise · 2024 FDDAnswer from 2024 FDD Document
ed, Crown Gold Franchising may enter the Location to remove the Marks and de-identify the Location. In this event, Crown Gold Franchising will not be charged with trespass nor be accountable or required to pay for any assets removed or altered, or for any damage caused by Crown Gold Franchising.
- 14.5 Liquidated Damages. If Crown Gold Franchising terminates this Agreement based upon Franchisee's default (or if Franchisee purports to terminate this Agreement except as permitted under Section 14.1), then within 10 days thereafter Franchisee shall pay to Crown Gold
Franchising a lump sum (as liquidated damages and not as a penalty) calculated as follows: (x) the average Royalty Fees that Franchisee owed to Crown Gold Franchising under this Agreement for the 52-week period preceding the date on which Franchisee ceased operating the Business; multiplied by (y) the lesser of (1) 104 or (2) the number of weeks remaining in the then-current term of this Agreement. If Franchisee had not operated the Business for at least 52 weeks, then (x) will equal the average Royalty Fees and Marketing Fund Contributions that Franchisee owed to Crown Gold Franchising during the period that Franchisee operated the Business. The "average Royalty Fees that Franchisee owed to Crown Gold Franchising" shall not be discounted or adjusted due to any deferred or reduced Royalty Fees and Marketing Fund Contributions set forth in an addendum to this Agreement, unless this Section 14.5 is specifically amended in such addendum. Franchisee acknowledges that a precise calculation of the full extent of Crown Gold Franchising's damages under these circumstances is difficult to determine and the method of calculation of such damages as set forth in this Section is reasonable. Franchisee's payment to Crown Gold Franchising under this Section will be in lieu of any direct monetary damages that Crown Gold Franchising may incur as a result of Crown Gold Franchising's loss of Royalty Fees and Marketing Fund Contributions that would have been owed to Crown Gold Franchising after the date of termination; however, such payment shall be in addition to all damages and other amounts arising under Section 14.3 and Section 14.4, Crown Gold Franchising's right to injunctive relief for enforcement of Article 13, and any attorneys' fees and other costs and expenses to which Crown Gold Franchising is entitled under this Agreement. Except as provided in this Section, Franchisee's payment of this lump sum shall be in addition to any other right or remedy that Crown Gold Franchising may have under this Agreement or otherwise.
14.6 Purchase Option. When this Agreement expires or is terminated, Crown Gold Franchising will have the right (but not the obligation) to purchase any or all of the assets related to the Business, and/or to require Franchisee to assign its lease or sublease to Crown Gold Franchising.
Source: Item 22 — CONTRACTS (FDD pages 38–39)
What This Means (2024 FDD)
According to the 2024 Crown Gold Exchange Franchise Disclosure Document, a franchisee can terminate the agreement under specific conditions. The franchisee may terminate the agreement if Crown Gold Exchange violates a material provision of the agreement and fails to cure the violation within 30 days after receiving written notice from the franchisee. The termination is effective 10 days after Crown Gold Exchange receives written notice of termination.
However, if Crown Gold Exchange terminates the agreement due to the franchisee's default, or if the franchisee attempts to terminate the agreement without proper cause, the franchisee may be subject to liquidated damages. These damages are calculated as a lump sum, based on the average Royalty Fees the franchisee owed for the 52-week period preceding the date the business ceased operating, multiplied by the lesser of 104 or the number of weeks remaining in the agreement term. If the business operated for less than 52 weeks, the calculation uses the average Royalty Fees and Marketing Fund Contributions owed during the period of operation.
The FDD specifies that this liquidated damages payment is in place of direct monetary damages for lost Royalty Fees and Marketing Fund Contributions, but it does not cover amounts owed under Sections 14.3 and 14.4, Crown Gold Exchange's right to injunctive relief, or attorney's fees. Therefore, while a franchisee can terminate the agreement if Crown Gold Exchange is in material breach, doing so without proper cause or as a result of franchisee default can trigger significant financial penalties.