For a terminated Hardees franchise, how is the royalty fee calculated for the 'Damages Period'?
Hardees Franchise · 2025 FDDAnswer from 2025 FDD Document
In addition, if this Agreement is terminated following Franchisee's default, since it would be difficult, if not impossible, to determine the amount of damages that HR will suffer as a result of Franchisee's breach, unless waived by HR in its sole discretion, Franchisee immediately shall pay HR, as damages and not as a penalty, the royalty fee that Franchisee would have paid during the period ("Damages Period") from the effective date of termination to the earlier of: (1) the 3 year anniversary of the effective date of termination; or (2) the date on which the Initial Term was scheduled to expire.
The amount of such royalty fee during the Damages Period will be calculated by multiplying the average weekly royalty fee owed by Franchisee for the 52-week period prior to the effective date of termination by the number of weeks in the Damages Period.
The obligation to pay this royalty fee survives termination of this Agreement and is in addition to, and not in lieu of, Franchisee's obligation to fully comply with its obligations under Section 20.C. following termination of this Agreement.
Source: Item 22 — Contracts (FDD page 85)
What This Means (2025 FDD)
According to Hardees's 2025 Franchise Disclosure Document, if the Franchise Agreement is terminated due to the franchisee's default, Hardees can require the franchisee to pay a royalty fee as damages for a specific period. This 'Damages Period' extends from the termination date until either the 3-year anniversary of the termination or the original expiration date of the Initial Term, whichever comes first. Hardees has the sole discretion to waive this payment.
The royalty fee owed during this Damages Period is calculated based on the franchisee's past performance. Specifically, it's determined by multiplying the average weekly royalty fee the franchisee owed during the 52-week period before the termination date by the number of weeks within the Damages Period.
This obligation to pay the royalty fee continues even after the termination of the agreement. It's important to note that this payment is in addition to, and not a replacement for, the franchisee's other obligations following the termination as outlined in Section 20.C of the agreement. This means a franchisee could face significant financial repercussions upon default and termination, including continued royalty payments in addition to other potential damages or costs.