Under what conditions does a Fly To Fit franchisee have to pay liquidated damages?
Fly_To_Fit Franchise · 2024 FDDAnswer from 2024 FDD Document
- 14.5 Liquidated Damages. If Fly To Fit Franchise terminates this Agreement based upon Franchisee's default (or if Franchisee purports to terminate this Agreement except as permitted under Section 14.1), then within 10 days thereafter Franchisee shall pay to Fly To Fit Franchise a lump sum (as liquidated damages and not as a penalty) calculated as follows: (x) the average Royalty Fees and Marketing Fund Contributions that Franchisee owed to Fly To Fit Franchise under this Agreement for the 12-month period preceding the date on which Franchisee ceased operating the Business; multiplied by (y) the lesser of (1) 24 or (2) the number of months remaining in the then-current term of this Agreement.
If Franchisee had not operated the Business for at least 12 months, then (x) will equal the average Royalty Fees and Marketing Fund Contributions that Franchisee owed to Fly To Fit Franchise during the period that Franchisee operated the Business.
The "average Royalty Fees and Marketing Fund Contributions that Franchisee owed to Fly To Fit Franchise" shall not be discounted or adjusted due to any deferred or reduced Royalty Fees and Marketing Fund Contributions set forth in an addendum to this Agreement, unless this Section 14.5 is specifically amended in such addendum.
Franchisee acknowledges that a precise calculation of the full extent of Fly To Fit Franchise's damages under these circumstances is difficult to determine and the method of calculation of such damages as set forth in this Section is reasonable.
Franchisee's payment to Fly To Fit Franchise under this Section will be in lieu of any direct monetary damages that Fly To Fit Franchise may incur as a result of Fly To Fit Franchise's loss of Royalty Fees and Marketing Fund Contributions that would have been owed to Fly To Fit Franchise after the date of termination; however, such payment shall be in addition to all damages and other amounts arising under Section 14.3 and Section 14.4, Fly To Fit Franchise's right to injunctive relief for enforcement of Article 13, and any attorneys' fees and other costs and expenses to which Fly To Fit Franchise is entitled under this Agreement.
Except as provided in this Section, Franchisee's payment of this lump sum shall be in addition to any other right or remedy that Fly To Fit Franchise may have under this Agreement or otherwise.
Source: Item 22 — CONTRACTS (FDD page 44)
What This Means (2024 FDD)
According to Fly To Fit's 2024 Franchise Disclosure Document, a franchisee may be required to pay liquidated damages if Fly To Fit terminates the Franchise Agreement due to the franchisee's default. Liquidated damages also apply if the franchisee attempts to terminate the agreement outside the conditions permitted in Section 14.1 of the agreement. This payment is considered a lump sum and not a penalty. The payment of liquidated damages does not preclude Fly To Fit from pursuing injunctive relief or recovering attorney's fees and other costs associated with enforcing the agreement.
The liquidated damages are calculated based on the average Royalty Fees and Marketing Fund Contributions owed by the franchisee to Fly To Fit. This average is taken over the 12-month period preceding the date the franchisee ceased operating the business. If the franchisee operated for less than 12 months, the average is calculated over the actual period of operation. This average is then multiplied by the lesser of 24 or the number of months remaining in the current term of the Franchise Agreement.
The FDD specifies that the calculation of liquidated damages will not be discounted or adjusted due to any deferred or reduced Royalty Fees and Marketing Fund Contributions outlined in any addendum to the agreement, unless Section 14.5 is specifically amended in such addendum. The franchisee acknowledges that determining the precise extent of Fly To Fit's damages is difficult, and the method used to calculate these damages is reasonable. The liquidated damages cover Fly To Fit's loss of future Royalty Fees and Marketing Fund Contributions but are in addition to damages arising under Sections 14.3 and 14.4, Fly To Fit's right to injunctive relief, and any legal fees Fly To Fit incurs.