What is the purpose of the liquidated damages clause in the Engel & Volkers franchise agreement?
Engel_Volkers Franchise · 2025 FDDAnswer from 2025 FDD Document
The parties recognize the difficulty of ascertaining damages to Franchisor resulting from premature termination of this Agreement and have provided for liquidated damages, which liquidated damages represent the parties' best estimate as to the damages arising from the circumstances in which they are provided and which are the only damages for the premature termination of this Agreement and not as a penalty or as damages for breaching this Agreement or in lieu of any other payment.
Accordingly, if this Agreement is terminated for Franchisee's breach before the Term expires, in addition to any other remedies available to Franchisor, Franchisee must pay Franchisor an amount equal to the combined monthly average of Royalty fees, National Marketing and Technology Fund contributions, and any other fees due and payable under this Agreement commencing with the Opening Date through the date of termination, multiplied by the lesser of (i) twenty-four (24) months; or (ii) the number of full calendar months remaining in the Term.
Source: Item 22 — CONTRACTS (FDD page 88)
What This Means (2025 FDD)
According to Engel & Volkers's 2025 Franchise Disclosure Document, the liquidated damages clause is designed to address the difficulty of calculating the exact financial harm to Engel & Volkers resulting from the early termination of a franchise agreement. The document states that the parties acknowledge how challenging it is to ascertain the damages to Engel & Volkers if the agreement is terminated prematurely. Therefore, the liquidated damages provision is included as the best estimate of damages arising from such circumstances.
The liquidated damages are not intended as a penalty for breaching the agreement or in place of any other payment. Instead, they are the sole compensation for the premature termination of the agreement. This clause aims to protect Engel & Volkers's interests and the overall system by ensuring that franchisees who terminate early compensate the company for the anticipated losses.
Specifically, if the Franchise Agreement is terminated due to the franchisee's breach before the end of the term, the franchisee must pay Engel & Volkers an amount calculated by multiplying the combined monthly average of Royalty fees, National Marketing and Technology Fund contributions, and any other fees due from the Opening Date through termination, by the lesser of 24 months or the number of full calendar months remaining in the Term. This calculation provides a clear and predetermined method for assessing damages, offering both Engel & Volkers and the franchisee clarity on the financial implications of early termination.