What is the purpose of the lump sum payment for liquidated damages 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 the 2024 Devon Creek Franchise Disclosure Document, the lump sum payment serves as liquidated damages, not a penalty, to compensate Devon Creek in the event the franchise agreement is terminated due to the franchisee's default. This payment acknowledges that precisely calculating the full extent of damages Devon Creek will incur from such a termination is difficult.
The lump sum is calculated based on two factors: the average weekly Royalty Fee and Brand Fund contribution payable by the franchisee over the 12 months before termination (or a shorter period if the business has been open for less than a year), and the lesser of 36 months or the number of months remaining in the agreement's term. This calculation aims to provide a reasonable estimate of Devon Creek's losses resulting from the franchisee's failure to uphold the agreement.
The FDD specifies that this liquidated damages payment is in addition to any other amounts the franchisee owes under the agreement. It also does not affect Devon Creek's right to seek injunctive relief or other remedies available under other provisions of the agreement. This means that Devon Creek retains the right to pursue legal action to protect its interests, even after receiving the lump sum payment.