How is the liquidated damages fee calculated by Itan if the franchise agreement is terminated?
Itan Franchise · 2025 FDDAnswer from 2025 FDD Document
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.
Source: Item 6 — OTHER FEES (FDD pages 11–15)
What This Means (2025 FDD)
According to Itan's 2025 Franchise Disclosure Document, liquidated damages are imposed if Itan terminates the Franchise Agreement due to the franchisee's default, or if the franchisee terminates the agreement before its expiration date, unless the franchisee is terminating due to Itan's uncured breach. The liquidated damages are calculated by summing 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 sum is then multiplied by the lesser of 104 (representing two years of fees) or the total number of weeks remaining under the franchise term.
If the franchisee pays the liquidated damages in a timely manner, Itan may not pursue a claim for lost profits. However, the payment of liquidated damages does not prevent Itan from seeking other damages incurred due to the franchisee's breach. This means that while paying liquidated damages might protect the franchisee from a lost profits claim, Itan retains the right to pursue additional claims for other damages resulting from the breach of the franchise agreement.
This calculation method provides a defined financial consequence for early termination, which is a common practice in franchising. Prospective franchisees should understand that terminating the agreement early can result in a significant financial obligation. It is important to carefully consider the implications of this clause and to seek legal counsel to fully understand the potential financial exposure before signing the Franchise Agreement.