Under what conditions is Ella Cafe entitled to collect 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, liquidated damages become 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 early termination of the franchise agreement.
The amount of liquidated damages is calculated based on the average royalty fees plus brand marketing fees that the franchisee owed for the 52-week period preceding the termination date. This average is then multiplied by the lesser of either 24 months (two years) or the number of weeks remaining in the franchise term. If the franchisee has not operated the business for at least 52 weeks, the calculation will be based on the average royalty and brand marketing fees owed during the period they were in operation.
This clause is significant for prospective franchisees as it outlines a substantial financial obligation in the event of early termination, regardless of the reason (provided it is due to franchisee default or unauthorized termination by the franchisee). Franchisees should carefully consider this potential liability and ensure they understand the terms and conditions under which termination can occur to avoid incurring these liquidated damages. It is also important to note that these liquidated damages are in addition to any other amounts the franchisee may owe to Ella Cafe under the franchise agreement.