Under what circumstances is an Ella Cafe franchisee required to pay Liquidated Damages?
Ella_Cafe Franchise · 2024 FDDAnswer from 2024 FDD Document
| Type of Fee1 | Amount | Due Date | Remarks |
|---|---|---|---|
| Liquidated Damages4 | An amount equal to average royalty fees plus brand marketing fees owed by you for a period of 52 weeks multiplied by the lesser of (i) twenty- four months or (ii) the remaining weeks of the franchise term. | On demand | Payable if we terminate your franchise agreement because of your default, or if you terminate the franchise agreement without the right to do so. |
Source: Item 6 — OTHER FEES (FDD pages 10–15)
What This Means (2024 FDD)
According to Ella Cafe's 2024 Franchise Disclosure Document, a franchisee may be required to pay liquidated damages under specific circumstances related to the termination of the franchise agreement. These damages are payable if Ella Cafe terminates the franchise agreement due to the franchisee's default, or if the franchisee terminates the agreement without having the right to do so. This provision is designed to compensate Ella Cafe for the anticipated losses resulting from the premature termination of the franchise agreement.
The amount of liquidated damages is calculated based on a formula that considers the average royalty fees plus brand marketing fees owed by the franchisee. This average is determined over a 52-week period preceding the effective date of termination. This average is then multiplied by the lesser of two figures: either twenty-four months or the number of weeks remaining in the franchise term. This calculation aims to provide a fair estimate of the revenue Ella Cafe would have received had the franchise agreement remained in effect for its full term.
The liquidated damages are due on demand, meaning Ella Cafe can request immediate payment once the termination is effective. This financial obligation is in addition to any other amounts the franchisee may owe to Ella Cafe under the franchise agreement. Prospective franchisees should understand this potential financial implication and carefully consider the terms under which the franchise agreement can be terminated to avoid incurring these damages. It is advisable to seek legal counsel to fully understand the implications of this clause before signing the franchise agreement.