For the purpose of calculating liquidated damages in the Exit franchise agreement, what time period is used to determine the average monthly Continuing Fees?
Exit Franchise · 2025 FDDAnswer from 2025 FDD Document
If this Agreement is terminated by Subfranchisor pursuant to this Section 16, or if Franchisee breaches this Agreement by a wrongful termination of this Agreement, then Subfranchisor will be entitled to seek recovery from Franchisee for all of the damages that Subfranchisor sustained prior to the termination, or will sustain in the future as a result of Franchisee's breach of this Agreement. The actual damages that Subfranchisor would suffer for the loss of prospective fees and other amounts due under this Agreement would be difficult, if not impossible, to ascertain. Therefore, Franchisee agrees, in addition to all damages that Subfranchisor sustained prior to the date of termination, Subfranchisor shall be entitled to recover, for Subfranchisor and for EXIT, as liquidated damages and not as a penalty, an amount equal to the average monthly Continuing Fees paid to Subfranchisor and EXIT in accordance with the EXIT Formula for the twelve (12) month period immediately preceding the termination multiplied by the number of months remaining until the Expiration Date.
Source: Item 23 — RECEIPT (FDD pages 42–235)
What This Means (2025 FDD)
According to Exit's 2025 Franchise Disclosure Document, if the franchise agreement is terminated, Exit calculates liquidated damages based on the average monthly Continuing Fees. This average is determined by looking at the twelve-month period immediately preceding the termination date. This amount is then multiplied by the number of months remaining until the original Expiration Date of the franchise agreement.
This calculation serves as a way for Exit to recoup potential future losses resulting from the early termination of the agreement. Instead of attempting to calculate the exact damages, which could be difficult and time-consuming, the franchise agreement stipulates this pre-agreed liquidated damages formula.
For a prospective Exit franchisee, this means that if you breach the agreement and it's terminated, you will be responsible for paying Exit an amount equivalent to the average monthly Continuing Fees from the past year, multiplied by the remaining term of the franchise. This could be a substantial sum, so it's crucial to understand the terms of the agreement and the potential consequences of early termination.