Does an Itan franchisee have to pay liquidated damages if they terminate the agreement due to Itan's breach?
Itan Franchise · 2025 FDDAnswer from 2025 FDD Document
ed (other than lost profits) as a result of our termination of this Agreement due to your breach; and (ii) the amount of any liabilities we assume on your behalf, including future rent and pre-paid liabilities (e.g., gift cards or "package" purchases). We will have at least 60 days after the purchase price of the Acquired Assets has been established to close the transaction.
- 21.3. Liquidated Damages. You must pay us liquidated damages if either: (a) we terminate this Agreement due to your default; or (b) you terminate this Agreement in any manner other than as permitted by §20.1 or §20.3. Liquidated damages are calculated as the product of Average Weekly Fees multiplied by the lesser of (a) 104 or (b) the total number of full weeks remaining under the Term as of the termination effective date. "Average Monthly Fees" means the combined average weekly royalty fee and brand fund fee (without regard to any fee waivers or other reductions, and regardless of collection) imposed by this Agreement during the 52-week period preceding the termination date (or during the period of time you operated the Business if less than 52 weeks). Liquidated damages are due 30 days after we send you an invoice detailing our calculation of same. Liquidated damages are in addition to and not in lieu of: (a) any fees or other amounts incurred by you prior to the termination of this Agreement, all of which must be paid by you in accordance with the terms of this Agreement; or (b) any damages we or our affiliate incur as a result of your breach of this Agreement; provided, however, that we may not pursue a Claim against you for recovery of lost future profits if you pay us all liquidated damages owed when due. The parties agree the amount of liquidated damages set forth in this Section is in proportion to, and is necessary to protect, our legitimate interests, including: (a) encouraging our franchisees to commit to the 10-year franchise relationship in which both parties have already invested time and expense to develop;
Source: Item 23 — RECEIPT (FDD pages 44–190)
What This Means (2025 FDD)
According to Itan's 2025 Franchise Disclosure Document, a franchisee is liable for liquidated damages if they terminate the agreement in any manner other than as permitted by specific sections (§20.1 or §20.3) of the agreement or if Itan terminates the agreement due to the franchisee's default. This means that if Itan breaches the agreement and the franchisee terminates as a result, the franchisee may still be required to pay liquidated damages unless the termination falls under the explicitly permitted conditions outlined in sections 20.1 or 20.3.
The liquidated damages are calculated by multiplying the Average Weekly Fees by the lesser of 104 or the total number of full weeks remaining under the term of the agreement as of the termination date. The 'Average Monthly Fees' are defined as the combined average weekly royalty fee and brand fund fee during the 52-week period preceding the termination date, regardless of any fee waivers or reductions. These liquidated damages are due 30 days after Itan sends an invoice detailing the calculation.
The FDD states that these liquidated damages are intended to protect Itan's legitimate interests, such as encouraging franchisees to commit to the 10-year franchise relationship, covering the expenses Itan incurs in recruiting a new franchisee, protecting the reputation and goodwill associated with their marks, and compensating Itan for financial damages resulting from the franchisee's breach or wrongful termination. However, the document also notes that if the liquidated damages clause is unenforceable under applicable law, Itan is only entitled to recover actual damages incurred as a result of the franchisee's default or improper termination.
It is important to note that California law, as stated in the FDD, may deem certain liquidated damages clauses unenforceable under Civil Code Section 1671. Prospective Itan franchisees should consult with legal counsel to fully understand the implications of the liquidated damages clause and its enforceability in their specific circumstances, especially considering the governing state law.