What rights or equities of redemption does the Debtor have under the Jersey Mikes agreement?
Jersey_Mikes Franchise · 2025 FDDAnswer from 2025 FDD Document
In the event this Agreement is terminated prior to the end of its term due to Franchisee's default, Franchisee shall promptly pay to Je rsey Mike's a lump sum payment as
liquidated damages and not as a penalty, for breaching this Agreement and for Jersey Mike's lost future revenue as a result of such breach in an amount equal to: (a) the average monthly royalty fees and advertising fees payable by Franchisee (as required under Sections 10 and 11 of this Agreement) over the twelve (12) full calendar months immediately preceding the date of termination; (b) multiplied by the lesser of (i) thirtysix (36) months, or (ii) the number of full calendar months then remaining in the thencurrent term of this Agreement; provided, however, that if (x) as of the termination date, the Restaurant had not operated a twelve (12) full calendar months, then the monthly royalty fees and a dvertising fees will be c alculated based on the ave rage monthly royalty fees and advertising fees for all JERSEY MIKE'S Restaurants during the fiscal year immediately preceding the termination date; and/or (y) the termination was based on Franchisee's unapproved closure of the Restaurant, average monthly royalty fees and advertising fees will be based on the twelve (12) full calendar months immediately preceding the closure of the Restaurant. Franchisee acknowledges that a precise calculation of the f ull extent of the damages Jersey Mike's will incur in the event of termination of this Agreement as a result of Franchisee's default is difficult to determine and that this lump sum payment as liquidated damages is reasonable in light of the damages Jersey Mike's will incur for Franchisee's material default causing the premature termination of th is Agreement. This lump sum payment of l iquidated damages shall be in lieu of any dam ages for Jersey Mike's lost future revenue that Jersey Mike's may incur as a result of Franchisee's default, but it shall be in addition to all amounts provided in Sections 18.7(a) and 18.8 and other costs and expenses to which Jersey Mike's is entitled under the terms of this Agreement. Franchisee's payment of this lump sum shall not affect Jersey Mike's right to recover damages other than lost future revenue and to obtain appropriate injunctive relief and other remedies to enforce this Section 18, its trademark rights under Section 6 above, and the covenants set forth in Section 8 and Section 16.
Source: Item 22 — CONTRACTS (FDD page 77)
What This Means (2025 FDD)
Based on the 2025 Jersey Mike's Franchise Disclosure Document, the agreement outlines specific conditions regarding termination due to a franchisee's default. If the franchise agreement is terminated early because of franchisee default, the franchisee must promptly pay Jersey Mike's a lump sum as liquidated damages, not as a penalty. This amount compensates Jersey Mike's for the breach and lost future revenue. The sum is calculated by multiplying the average monthly royalty and advertising fees (from the 12 months before termination) by either 36 months or the number of months remaining in the agreement term, whichever is less. If the restaurant hasn't operated for a full 12 months, the calculation uses the average monthly fees for all Jersey Mike's restaurants during the prior fiscal year. If termination results from unapproved closure, the calculation uses the 12 months before closure.
This lump sum covers lost future revenue but is in addition to other amounts Jersey Mike's can claim under Sections 18.7(a) and 18.8 of the agreement, as well as other costs and expenses. Paying this sum doesn't affect Jersey Mike's right to seek damages beyond lost future revenue or to pursue injunctive relief to enforce Section 18, trademark rights, and covenants in Sections 8 and 16.
However, the FDD does not explicitly detail any 'rights or equities of redemption' that a debtor (franchisee) might have, such as a formal process to reclaim the franchise after a default or specific conditions under which the franchisor must allow the franchisee to 'cure' the default and reinstate the agreement. The document focuses more on the financial repercussions and obligations of the franchisee in case of default and termination rather than outlining a redemption process.
Therefore, a prospective Jersey Mike's franchisee should directly ask the franchisor about any potential rights or equities of redemption that may exist but are not explicitly detailed in this section of the FDD. Understanding the conditions under which a terminated franchise could be recovered, if any, is crucial for assessing the risks and potential liabilities associated with the franchise agreement.