Is the lump sum payment for liquidated damages considered a penalty in the Devon Creek agreement?
Devon_Creek Franchise · 2024 FDDAnswer from 2024 FDD Document
- 18.1.7. 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 18.1.7 shall be in addition to all other amounts payable under this Agreement and shall not affect Franchisor's right to obtain appropriate injunctive relief and remedies pursuant to any other provision of this Agreement; and
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 of the franchise agreement due to the franchisee's default is considered liquidated damages, not a penalty. The agreement specifies that this payment is meant to compensate Devon Creek for the damages incurred as a result of the termination.
The lump sum is calculated based on a formula that takes into account the average weekly Royalty Fee and Brand Fund contribution paid 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.
The Devon Creek franchise agreement states that the franchisee acknowledges that precisely calculating the full extent of damages resulting from termination is difficult, and therefore, the lump sum payment is deemed reasonable. This payment is in addition to any other amounts owed under the agreement and does not affect Devon Creek's right to seek injunctive relief or other remedies.