Is the non-compliance fee charged by Ella Cafe considered a penalty or an estimate of all damages?
Ella_Cafe Franchise · 2024 FDDAnswer from 2024 FDD Document
Non-Compliance Fee.** Franchisor may charge Franchisee $500 for any instance of noncompliance with the System Standards or this Agreement (other than Franchisee's non-payment of a fee owed to Franchisor) which Franchisee fails to cure after 30 days' notice. Thereafter, Franchisor may charge Franchisee $250 per week until Franchisee ceases such non-compliance. This fee is a reasonable estimate of Franchisor' internal cost of personnel time attributable to
Source: Item 22 — CONTRACTS (FDD page 50)
What This Means (2024 FDD)
According to Ella Cafe's 2024 Franchise Disclosure Document, the non-compliance fee is not considered a penalty or an estimate of all damages arising from a franchisee's breach of contract. Instead, it is defined as a reasonable estimate of Ella Cafe's internal cost of personnel time spent addressing the non-compliance.
Ella Cafe may charge a franchisee $250 per week until the franchisee ceases the non-compliance. This fee is in addition to all of Ella Cafe's other rights and remedies, including default and termination rights as outlined in Section 14.2 of the franchise agreement.
This distinction is important for prospective franchisees because it clarifies that the $250 weekly fee is specifically for covering Ella Cafe's administrative costs related to addressing the non-compliance, not a comprehensive compensation for all potential losses or damages Ella Cafe might incur due to the breach. Therefore, Ella Cafe retains the right to pursue additional legal or financial remedies for any further damages resulting from the franchisee's non-compliance.