What is the maximum period used to calculate the liquidated damages that an Ella Cafe franchisee owes?
Ella_Cafe Franchise · 2024 FDDAnswer from 2024 FDD Document
If Franchisee fails or refuses to comply with the requirements of this Section 14, Franchisor has the right to enter upon the Coffee House for the purpose of making or causing to be made such changes as may be required, at the expense of Franchisee, which expense Franchisee shall pay upon demand.
- 14.12 Liquidated Damages. If Franchisor terminates this Agreement based upon Franchisee's default (or if Franchisee purports to terminate this Agreement except as permitted under Section 14.8), then within 10 days thereafter Franchisee shall pay to Franchisor a lump sum (as liquidated damages and not as a penalty) calculated as follows: (a) the average Royalty Fees and Brand Marketing Fee Contributions that Franchisee owed to Franchisor under this Agreement for the 52 week period preceding the effective date of termination; multiplied by (y) the lesser of (1) two years or (2) the number of weeks remaining in the then-current term of this Agreement.
If
Source: Item 22 — CONTRACTS (FDD page 50)
What This Means (2024 FDD)
According to Ella Cafe's 2024 Franchise Disclosure Document, the maximum period used to calculate liquidated damages is two years. If Ella Cafe terminates the Franchise Agreement due to the franchisee's default, or if the franchisee terminates the agreement without permission, the franchisee must pay Ella Cafe a lump sum within 10 days.
The lump sum is calculated using a formula. First, the average Royalty Fees and Brand Marketing Fee Contributions that the franchisee owed to Ella Cafe for the 52-week period preceding the termination date are determined. This average is then multiplied by the lesser of two years or the number of weeks remaining in the current term of the agreement.
This liquidated damages clause is designed to compensate Ella Cafe for the anticipated loss of future royalty and marketing fee income resulting from the early termination of the franchise agreement. The franchisee should understand that this payment is in addition to any other amounts owed to Ella Cafe, such as outstanding fees or costs associated with enforcing the agreement. The franchisee should also note that the liquidated damages may be impacted by how long the franchise agreement has been in effect.