How is the amount of liquidated damages calculated for a Fly To Fit franchise?
Fly_To_Fit Franchise · 2024 FDDAnswer from 2024 FDD Document
| Type of Fee | Amount | Due Date | Remarks |
|---|---|---|---|
| Liquidated damages | An amount equal to royalty fees and marketing fund contributions for the lesser of (i) 2 years 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. |
| Royalty | 6% of your gross sales | Monthly, by the 1st Tuesday of the following month | See Note 1 and Note 2. |
| Marketing Fund Contribution | 1% of your gross sales | Monthly, by the 1st Tuesday of the following month | See Item 11 for a detailed discussion about these funds. Amounts due will be withdrawn by electronic wire transfer from your designated bank account. |
Source: Item 6 — OTHER FEES (FDD pages 12–16)
What This Means (2024 FDD)
According to Fly To Fit's 2024 Franchise Disclosure Document, liquidated damages are calculated based on royalty fees and marketing fund contributions. If Fly To Fit terminates the franchise agreement due to the franchisee's default, or if the franchisee terminates the agreement without proper cause, the franchisee must pay liquidated damages.
The amount is equivalent to the royalty fees (6% of gross sales) and marketing fund contributions (1% of gross sales) that would have been collected for either two years or the remaining duration of the franchise term, whichever is shorter. This means Fly To Fit aims to recoup the income it anticipates losing due to the early termination of the agreement.
For a prospective Fly To Fit franchisee, this signifies a substantial financial risk if the franchise agreement is terminated prematurely. The franchisee could be liable for up to two years' worth of royalty and marketing fund payments, potentially creating a significant financial burden. It is important to fully understand the conditions under which termination can occur and to assess the potential financial exposure. Franchisees should carefully consider this when evaluating the overall financial viability and risks associated with investing in a Fly To Fit franchise.