What is included in the calculation of Lost Revenue Damages for a Sonesta Select Sonesta Essential franchise?
Sonesta_Select_Sonesta_Essential Franchise · 2025 FDDAnswer from 2025 FDD Document
(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, the calculation of Lost Revenue Damages includes several factors. These damages are designed to compensate Sonesta Select Sonesta Essential for the loss of future revenue streams resulting from the early termination of the franchise agreement, either due to the franchisee's breach or the franchisee terminating without cause. The damages are based on the Royalties and Brand Promotion Fees that Sonesta Select Sonesta Essential would have received had the agreement continued.
The calculation specifically considers the lesser of 36 months or the number of months remaining in the franchise term. This figure is then multiplied by the combined percentages of the Royalty fee and Brand Promotion Fee. Finally, this product is multiplied by the average monthly Gross Rooms Revenue of the hotel over the 36 months immediately preceding the last date of regular operations. If the hotel has been operating for less than 36 months, the average monthly Gross Rooms Revenue is calculated based on the actual operating period.
It's important to note that these Lost Revenue Damages are considered a reasonable estimate of future lost profits and are not intended as a penalty. Additionally, the FDD specifies that these damages are calculated net of any cost savings Sonesta Select Sonesta Essential might experience due to the termination. The franchisee is obligated to pay these damages within fifteen days of the agreement's termination, although Sonesta Select Sonesta Essential reserves the right to specify a later date. However, if the franchise agreement is terminated due to casualty, the franchisee will not be obligated to pay Lost Revenue Damages.