In the event of termination by Sonesta Select Sonesta Essential, does the franchisee have to pay liquidated damages?
Sonesta_Select_Sonesta_Essential Franchise · 2025 FDDAnswer from 2025 FDD Document
m that your lodging facility is no longer part of the Franchise System. We further have the right to inform those guests of other facilities within the Franchise System that are near your Hotel if the guests prefer to change their reservations. You agree that the exercise of our rights under this Section will not constitute interference with your contractual or business relationship.
G. Damages.
(1) Lost Revenue Damages. To preserve the Franchise System in the interest of all franchisees, it is necessary to protect the relevant trade secrets and know-how and prevent its disclosure to Competitive Businesses. If we terminate this Agreement because of your breach or if you terminate this Agreement without cause, you and we agree that it would be difficult, if not impossible, to determine the amount of damages that we would suffer due to the loss or interruption of the revenue stream we otherwise would have derived from your continued payment of Royalties and Brand Promotion Fees through the remainder of the Term. Therefore, you and we agree that a reasonable estimate of such damages, which are damages for the future profits lost to us due to the premature termination of this Agreement, and not as a penalty or as damages for breaching this Agreement, or in lieu of any other payment, less any cost savings we might have experienced (the "Lost Revenue Damages"), is an amount equal to the net present value of the Royalties and Brand Promotion Fees that would have become due had this Agreement not been terminated, from the date of termination to the scheduled expiration of the Term. For the purposes of this Section, Lost Revenue Damages shall be calculated as follows: (1) the lesser of 36 or the number of full and partial calendar months remaining in the Term, multiplied by (2) the aggregate of the Royalty fee and Brand Promotion Fee percentages, multiplied by (3) the average monthly Gross Rooms Revenue of your Hotel during the 36 full calendar months immediately preceding the last date of regular operations of your Hotel; provided, that if, as of such date, your Hotel has not been operating for at least 36 months, the average monthly Gross Rooms Revenue shall be based on the average Gross Rooms Revenue of your Hotel for all full calendar months during the period commencing on the Opening Date and ending as of the last full calendar month immediately preceding the last date of regular operations of your Hotel.
Source: Item 22 — CONTRACTS (FDD page 84)
What This Means (2025 FDD)
According to Sonesta Select Sonesta Essential's 2025 Franchise Disclosure Document, if the franchise agreement is terminated due to condemnation or casualty, the franchisee will not be obligated to pay lost revenue damages. However, if Sonesta Select Sonesta Essential terminates the agreement because of the franchisee's breach, or if the franchisee terminates the agreement without cause, the franchisee may have to pay lost revenue damages.
The FDD states that these lost revenue damages are designed to protect the franchise system by preventing the disclosure of trade secrets to competitive businesses. Sonesta Select Sonesta Essential and the franchisee agree that determining the exact amount of damages from the loss of future royalties and brand promotion fees would be difficult. Therefore, the lost revenue damages are considered a reasonable estimate of the future profits lost due to the early termination of the agreement.
The calculation of lost revenue damages is based on the net present value of the royalties and brand promotion fees that would have been due from the termination date to the scheduled expiration of the term. Specifically, it is calculated by multiplying: (1) the lesser of 36 or the number of remaining months in the term, by (2) the combined royalty and brand promotion fee percentages, and by (3) the average monthly Gross Rooms Revenue of the hotel over the 36 months before the last day of regular operations. If the hotel has not operated for 36 months, the average monthly Gross Rooms Revenue is based on the period from the opening date to the last full calendar month before the final day of operations.