Is the lump sum payment for a defaulting Devon Creek franchisee considered a penalty?
Devon_Creek Franchise · 2024 FDDAnswer from 2024 FDD Document
- 18.1.9 in the event this Agreement is terminated due to Franchisee's default, pay Franchisor a lump sum payment (as liquidated damages and not as a penalty) in an amount equal to: (a) the average weekly Royalty Fee and Brand Fund Contribution payable by Franchisee over the twelve (12) month period immediately prior to the date of termination (or such shorter time period if the Franchised Business has been open less than twelve (12) months); (b) multiplied by the lesser of (i) thirty-six (36) months or (ii) the number of months then remaining in the then-current term of this Agreement.
Franchisee acknowledges that a precise calculation of the full extent of the damages Franchisor will incur in the event of termination of this Agreement as a result of Franchisee's default is difficult to determine and that this lump sum payment is reasonable in light thereof.
The liquidated damages payable by Franchisee pursuant to this Section 18.1.8 shall be in addition to all other amounts
Source: Item 22 — CONTRACTS (FDD page 45)
What This Means (2024 FDD)
According to Devon Creek's 2024 Franchise Disclosure Document, the lump sum payment required upon termination due to a franchisee's default is considered liquidated damages, not a penalty. The document states that this payment is meant to compensate Devon Creek for the damages incurred due to the termination of the agreement.
The lump sum is calculated based on the average weekly Royalty Fee and Brand Fund contribution payable by the franchisee over the 12 months prior to termination (or a shorter period if the business has been open for less than 12 months). This average is then multiplied by the lesser of 36 months or the number of months remaining in the current term of the agreement.
Devon Creek emphasizes that calculating the precise damages from a franchisee's default is difficult, and the lump sum payment is a reasonable estimate. This payment is in addition to any other amounts owed under the agreement and does not limit Devon Creek's right to seek injunctive relief or other remedies.