What does Del Taco consider to be reasonable in light of the damages for premature termination?

According to Del Taco's 2025 Franchise Disclosure Document, the company acknowledges that precisely calculating the full extent of damages resulting from a franchisee's default and subsequent termination is not reasonably determinable. However, Del Taco and the franchisee agree that the lump-sum payment required under Section 14.1.4 of the franchise agreement is a reasonable estimate of the damages Del Taco may incur due to premature termination. This payment is not considered a penalty.

Section 14.1.4 specifies that upon termination, the franchisee must pay all outstanding sums and damages for the right to receive Royalty Fees for the remaining term of the agreement, in addition to any other damages suffered by Del Taco because of the default. The damages for royalties are calculated by multiplying the average yearly amount of all fees paid by the franchisee under Section 3 during the three years preceding termination (or the period the restaurant was open, if less than three years) by the number of years remaining in the franchise term.

This clause aims to compensate Del Taco for the anticipated loss of future royalty payments and other potential damages resulting from the franchisee's early termination. By agreeing to this liquidated damages provision, prospective franchisees acknowledge that Del Taco's method of calculating these damages is a fair and reasonable estimate of the actual harm the company would suffer if the franchise agreement is prematurely terminated due to the franchisee's default. Franchisees should carefully consider this calculation and its potential financial impact before entering into an agreement with Del Taco.