What is the franchisee's obligation if Itan terminates the Franchise Agreement due to the franchisee's default?
Itan Franchise · 2025 FDDAnswer from 2025 FDD Document
an 1 fee adjustment during any 5-year period.
-
- Liquidated Damages: You must pay us liquidated damages if: (a) we terminate the Franchise Agreement due to your default; or (b) you terminate the Franchise Agreement prior to its expiration date (except in accordance with the provisions governing your right to terminate following our uncured breach). Liquidated damages are calculated as the sum of average weekly royalty fees and brand fund fees imposed during the 52-week period preceding termination (or your entire period of operation if less than 52-weeks) multiplied by the lesser of: (a) 104 (representing 2 years of fees); or (b) the total number of weeks remaining under the term. If you pay us liquidated damages in a timely manner, we may not pursue a claim against you for lost profits. However, payment of liquidated damages does not prevent us from seeking other damages we incur due to your breach.
ITEM 7 ESTIMATED INITIAL INVESTMENT
Table A: The table below includes the estimated initial investment to develop and open a single Salon. In preparing these estimates, we have assumed your Salon is not a Conversion Salon. If your Salon qualifies as a Conversion Salon, your initial investment may be lower.
Source: Item 6 — OTHER FEES (FDD pages 11–15)
What This Means (2025 FDD)
According to Itan's 2025 Franchise Disclosure Document, if Itan terminates the Franchise Agreement due to the franchisee's default, the franchisee must pay liquidated damages to Itan. These liquidated damages are calculated based on the average weekly royalty fees and brand fund fees from the 52-week period preceding the termination. If the franchise operated for less than 52 weeks, the calculation uses the entire period of operation. This average is then multiplied by either 104 (representing two years of fees) or the number of weeks remaining under the franchise term, whichever is less.
If the franchisee pays these liquidated damages in a timely manner, Itan may not pursue a claim against the franchisee for lost profits. However, the payment of liquidated damages does not prevent Itan from seeking other damages incurred due to the franchisee's breach of the agreement. This means that while paying the liquidated damages covers the lost royalty and brand fund fees, Itan can still pursue additional claims for other financial harms caused by the franchisee's default.
In addition to liquidated damages, the franchisee may also be responsible for other fees and costs if Itan terminates the agreement due to default. These include attorneys' fees and costs incurred by Itan related to the franchisee's breach, as well as indemnification for any losses or expenses Itan incurs due to the franchisee's operation of the salon or breach of the Franchise Agreement. The franchisee may also be responsible for default reimbursements, covering all costs Itan incurs to cure the franchisee's default, such as failure to pay suppliers or maintain insurance. These costs are due 10 days after invoicing.
This provision is fairly standard in franchising, as it aims to compensate the franchisor for the financial losses resulting from a franchisee's failure to uphold their contractual obligations. However, prospective Itan franchisees should carefully consider the potential financial burden of liquidated damages and other associated costs in the event of a default and termination, as these can be substantial.