How is the lump sum payment calculated for a Fly Fitness franchisee who defaults on the franchise agreement?
Fly_Fitness Franchise · 2024 FDDAnswer from 2024 FDD Document
- 18.1.8. in the event this Agreement is terminated due to Franchisee's default, pay Franchisor a lump sum payment (as liquidated damages and not as a penalty) in an amount equal to: (a) the average weekly Royalty Fee and Brand Fund Contribution payable by Franchisee over the twelve (12) month period immediately prior to the date of termination (or such shorter time period if the Franchised Business has been open less than twelve (12) months); (b) multiplied by the lesser of (i) twenty-four (24) months or (ii) the number of months then remaining in the then-current term of this Agreement. Franchisee acknowledges that a precise calculation of the full extent of the damages Franchisor will incur in the event of termination of this Agreement as a result of Franchisee's default is difficult to determine and that this lump sum payment is reasonable in light thereof. The liquidated damages payable by Franchisee pursuant to this Section 18.1.8 shall be in addition to all other amounts payable under this Agreement and shall not affect Franchisor's right to obtain appropriate injunctive relief and remedies pursuant to any other provision of this Agreement; and
Source: Item 22 — CONTRACTS (FDD pages 44–45)
What This Means (2024 FDD)
According to Fly Fitness's 2024 Franchise Disclosure Document, if the Franchise Agreement is terminated due to the franchisee's default, the franchisee must pay Fly Fitness a lump sum as liquidated damages, not as a penalty. This lump sum is calculated based on a formula that considers the franchisee's average weekly Royalty Fee and Brand Fund Contribution.
To calculate this payment, Fly Fitness will determine the average weekly Royalty Fee and Brand Fund Contribution payable by the franchisee over the 12-month period immediately before the termination date. If the Fly Fitness business has been open for less than 12 months, the average will be calculated using the shorter time period. This average weekly amount is then multiplied by the lesser of 24 months or the number of months remaining in the current term of the Franchise Agreement.
The FDD specifies that Fly Fitness considers it difficult to precisely calculate the full extent of damages it will incur if the agreement is terminated due to franchisee default, and that this lump sum payment is a reasonable estimate of those damages. This liquidated damages payment is in addition to all other amounts payable under the Franchise Agreement, and it does not affect Fly Fitness's right to seek injunctive relief and other remedies available under the agreement.