How are the liquidated damages for royalties calculated if a Del Taco agreement is terminated?
Del_Taco Franchise · 2025 FDDAnswer from 2025 FDD Document
Franchisee shall pay Del Taco all sums then due plus damages for the right to receive the Royalty Fees for the remaining term of this Agreement, together with any other damages suffered by Del Taco as a result of the default.
The damages for royalties due during the remainder of the term of this Agreement shall equal the product of the average yearly amount of all fees paid or payments by Franchisee under Section 3 of this Agreement during the three years immediately preceding the termination (or such period as the Restaurant was open for business, if the Restaurant was not open for business during the entire three year period), multiplied by the number of years remaining in the term.
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.
Source: Item 22 — CONTRACTS (FDD pages 58–59)
What This Means (2025 FDD)
According to Del Taco's 2025 Franchise Disclosure Document, if the franchise agreement is terminated, the franchisee must pay Del Taco 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 as a result of the default. These payments are not considered a penalty.
The liquidated damages for royalties are calculated by multiplying the average yearly amount of all fees paid by the franchisee under Section 3 of the agreement during the three years immediately preceding the termination (or such period as the Restaurant was open for business, if the Restaurant was not open for business during the entire three year period) by the number of years remaining in the term.
Del Taco states that a precise calculation of the full extent of damages that Del Taco will incur if the Agreement terminates because Franchisee defaults cannot be reasonably determined. However, Del Taco and the franchisee 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. This calculation serves as a pre-agreed upon estimate of the financial harm Del Taco would suffer if the franchise agreement is cut short due to the franchisee's breach.