Under what conditions is the Subfranchisor entitled to seek recovery from the Franchisee for damages related to the Exit franchise agreement?
Exit Franchise · 2025 FDDAnswer from 2025 FDD Document
(2) reduce the size of the Protected Territory.
- (D) Nothing in this Section 16 will preclude Subfranchisor from seeking other remedies against Franchisee under state or federal laws or under this Agreement, including, but not limited to, recovery of attorneys' fees, punitive damages and injunctive relief.
16.3. Damages
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.
**17.
Source: Item 23 — RECEIPT (FDD pages 42–235)
What This Means (2025 FDD)
According to Exit's 2025 Franchise Disclosure Document, the subfranchisor is entitled to seek recovery from the franchisee for damages under specific conditions related to termination or breach of the franchise agreement. If the subfranchisor terminates the agreement due to the franchisee's default, or if the franchisee wrongfully terminates the agreement, the subfranchisor can seek recovery for damages sustained both before and after the termination.
The FDD specifies that calculating the exact damages for lost prospective fees is difficult. Therefore, the franchisee agrees to pay liquidated damages, which are calculated using a formula. This formula includes the average monthly Continuing Fees paid to the Subfranchisor and EXIT, based on the EXIT Formula, for the 12 months preceding termination. This average is then multiplied by the number of months remaining until the original expiration date of the agreement. This liquidated damages clause aims to compensate the subfranchisor for the anticipated future revenue lost due to the termination.
Furthermore, the subfranchisor's right to seek remedies isn't limited to these liquidated damages. The subfranchisor can also pursue other remedies available under state or federal laws, or the franchise agreement itself. These remedies may include recovery of attorneys' fees, punitive damages, and injunctive relief. This provision ensures that the subfranchisor has various legal avenues to address the franchisee's breach or wrongful termination, providing a comprehensive approach to protecting their interests and the integrity of the Exit franchise system.