What is the basis for considering the Dryject liquidated damages provision a reasonable pre-estimate?
Dryject Franchise · 2025 FDDAnswer from 2025 FDD Document
(b) The parties further agree that, in addition to such other damages awarded or any and all other damages We may have in the future for any violations of Your post-termination obligations, if this Agreement is terminated by Us because of Your default or if You terminate without cause, You shall be liable to Us for a lump sum termination fee equal to the net present value of the Royalty Service Fees and Marketing Fund Fees that would have become due following termination of this Agreement, for the period this Agreement would have remained in effect but for Your default. Royalty Service Fees and Marketing Fund Fees for purposes of this Section shall be calculated based on the Franchised Business' average monthly Gross Revenues for the twelve (12) months preceding the termination date; or (ii) a payment amount equal to the Minimum Royalty Service Fees and Marketing Fund Fees that would have become due following termination of this Agreement for the period this Agreement would have remained in effect but for Your default; whichever is greater. The payment amount would be equal to the net present value utilizing the
Prime Rate as published per the Wall Street Journal. This fee is in addition to, and not in lieu of any other damages We sustain as a result of the termination. The parties hereto acknowledge and agree that it would be impracticable to determine precisely the damages We would incur from this Agreement's termination due to Your default, and the loss of cash flow due to, among other things, the complications of determining what costs, if any, We might have saved and how much the fees would have grown over what would have been this Agreement's remaining Term. The parties consider this liquidated damages provision to be a reasonable, good faith and genuine pre-estimate of those damages, and not a penalty.
Source: Item 8 — BUSINESS RELATIONSHIP (FDD pages 68–229)
What This Means (2025 FDD)
According to Dryject's 2025 Franchise Disclosure Document, the liquidated damages provision is considered a reasonable pre-estimate of damages due to the impracticality of precisely determining the actual damages Dryject would incur if the franchise agreement is terminated early due to the franchisee's default or if the franchisee terminates without cause.
The FDD states that calculating the exact damages is complicated by the difficulty in determining potential cost savings and the future growth of fees over the remaining term of the agreement. The liquidated damages are based on the net present value of Royalty Service Fees and Marketing Fund Fees that would have been due for the remainder of the agreement's term. These fees are calculated using either the average monthly Gross Revenues for the 12 months preceding termination or the Minimum Royalty Service Fees and Marketing Fund Fees, whichever is greater, discounted to net present value using the Prime Rate as published in the Wall Street Journal.
This approach aims to compensate Dryject for the anticipated loss of revenue and marketing contributions they would have received had the agreement remained in effect. The agreement explicitly states that both parties acknowledge and agree that this liquidated damages provision represents a reasonable, good faith, and genuine pre-estimate of those damages, rather than a penalty.