If Dryject terminates the franchise agreement due to the franchisee's default, how is the termination fee calculated?
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 the 2025 Dryject Franchise Disclosure Document, if Dryject terminates the franchise agreement because of the franchisee's default, the franchisee must pay a termination fee. This fee is a lump sum calculated as the greater of two amounts. The first is the net present value of the Royalty Service Fees and Marketing Fund Fees that would have been due for the remainder of the agreement's term. These fees are based on the average monthly Gross Revenues for the 12 months before termination. The second is the net present value of the Minimum Royalty Service Fees and Marketing Fund Fees that would have been due for the remainder of the agreement's term. The net present value is calculated using the Prime Rate as published in the Wall Street Journal.
This termination fee is in addition to any other damages Dryject might incur due to the termination. The FDD states that it would be difficult to precisely determine the damages Dryject would incur from the agreement's termination due to the franchisee's default. This difficulty arises from the complications of determining potential cost savings and how much the fees would have grown over the remaining term of the agreement. Therefore, this liquidated damages provision is considered a reasonable, good faith, and genuine pre-estimate of those damages, and not a penalty.
This clause has significant financial implications for a franchisee who is considering terminating the agreement without cause or who is at risk of having the agreement terminated by Dryject due to default. The franchisee could be liable for a substantial termination fee, potentially encompassing several years' worth of royalties and marketing fund fees. Prospective franchisees should carefully consider this provision and discuss it with a financial advisor to fully understand the potential financial exposure.