Does the Del Taco agreement specify that the liquidated damages calculation is considered a penalty?
Del_Taco Franchise · 2025 FDDAnswer from 2025 FDD Document
The payments called for in this Section 14.1.4 are not a penalty.
A precise calculation of the full extent of damages that Del Taco will incur if this Agreement terminates because Franchisee defaults cannot be reasonably determined.
Nevertheless, the parties agree that the lump-sum payment provided under this Section 14.1.4 is reasonable in light of the damages for premature termination that may reasonably be expected to occur in such event.
Source: Item 22 — CONTRACTS (FDD pages 58–59)
What This Means (2025 FDD)
According to the 2025 Del Taco Franchise Disclosure Document, the franchise agreement explicitly states that the liquidated damages calculation is not considered a penalty. The agreement acknowledges that precisely calculating the full extent of damages Del Taco would incur if the agreement terminates due to the franchisee's default is not reasonably determinable.
Despite the difficulty in precisely calculating damages, Del Taco and the franchisee agree that the lump-sum payment outlined in Section 14.1.4 is reasonable considering the damages for premature termination that may reasonably be expected. This suggests that while the exact financial impact is hard to predict, the method used to calculate liquidated damages is a fair estimate of potential losses.
This clause aims to protect Del Taco from losses resulting from a franchisee's default and premature termination of the agreement. By stating that the liquidated damages are not a penalty, Del Taco reinforces the enforceability of this provision, making it more likely that a franchisee will be required to pay the specified amount upon default. Prospective franchisees should understand how these damages are calculated, as detailed in Section 14.1.4, and consider this potential financial obligation when evaluating the franchise opportunity.