Are liquidated damages and termination penalties permitted in the State of Indiana for Itan franchises?
Itan Franchise · 2025 FDDAnswer from 2025 FDD Document
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- Liquidated damages and termination penalties are prohibited by law in the State of Indiana and, therefore, the Disclosure Document, the Franchise Agreement and Supplemental Agreements are amended by the deletion of all references to liquidated damages and termination penalties and the addition of the following language to the original language that appears therein:
Notwithstanding any such termination, and in addition to the obligations of the franchisee as otherwise provided, or in the event of termination or cancellation of the Franchise Agreement under any of the other provisions therein, the franchisee nevertheless shall be, continue and remain liable to franchisor for any and all damages which franchisor has sustained or may sustain by reason of such default or defaults and the breach of the Franchise Agreement on the part of the franchisee for the unexpired Term of the Franchise Agreement.
Source: Item 23 — RECEIPT (FDD pages 44–190)
What This Means (2025 FDD)
According to Itan's 2025 Franchise Disclosure Document, liquidated damages and termination penalties are prohibited by law in the State of Indiana. The franchise agreement is amended to delete all references to liquidated damages and termination penalties. However, even with the termination of the franchise agreement, the franchisee remains liable to Itan for any damages sustained because of any default or breach of the franchise agreement for the unexpired term of the agreement.
This means that while Itan cannot impose pre-determined liquidated damages or termination penalties on franchisees in Indiana, they can still pursue actual damages incurred due to a franchisee's default or breach of contract. This could include lost profits, costs associated with finding a replacement franchisee, and other expenses directly resulting from the franchisee's actions.
For a prospective Itan franchisee in Indiana, this is a mixed bag. On one hand, they are protected from potentially large, pre-set penalties if they terminate the agreement under certain circumstances. On the other hand, they are still liable for actual damages if they breach the agreement, which could be substantial depending on the circumstances. It is important for franchisees to fully understand their obligations under the franchise agreement and to seek legal counsel if they are considering terminating the agreement or if they are in default.