In the event of early termination of the Spray Net agreement, what damages will the franchisee have to pay?
Spray_Net Franchise · 2025 FDDAnswer from 2025 FDD Document
Franchisee and Franchisor agree and acknowledge that the damages Franchisor will sustain upon an early termination of this Agreement are difficult to foresee and estimate.
Therefore, upon the termination of this Agreement before the end of the Term, Franchisee shall pay Franchisor liquidated damages equal to seven percent (7%) of the applicable annual Minimum Gross Sales for the Franchised Business found in Section 6.Z. of this Agreement corresponding to the year of operation in which this agreement is terminated.
For avoidance of doubt, the applicable annual Minimum Gross Sales will be based on the number of Territories Franchisee has purchased and the length of time that Franchisee has operated the Franchised Business.
These liquidated damages are in addition to all remedies that Franchisor may have against Franchisee for breach of the restrictive covenants found in Section 14 of this Agreement or extracontractual claims such as fraud or unfair and deceptive trade practices.
Source: Item 23 — RECEIPTS (FDD pages 75–219)
What This Means (2025 FDD)
According to Spray Net's 2025 Franchise Disclosure Document, if the franchise agreement is terminated early, the franchisee must pay liquidated damages to Spray Net. These damages are calculated as seven percent (7%) of the applicable annual Minimum Gross Sales for the Franchised Business, as detailed in Section 6.Z of the Franchise Agreement, for the year in which the agreement is terminated. The annual Minimum Gross Sales figure depends on the number of territories the franchisee has purchased and how long the franchise has been in operation.
This liquidated damages payment is in addition to any other remedies Spray Net may pursue against the franchisee for breaches of restrictive covenants outlined in Section 14 of the agreement. It also covers extracontractual claims like fraud or unfair and deceptive trade practices. This means that in addition to the liquidated damages, a franchisee could face further financial penalties or legal action depending on the circumstances of the termination.
For prospective Spray Net franchisees, this clause highlights the importance of understanding the minimum gross sales requirements and the potential financial consequences of terminating the agreement early. It also emphasizes the need to adhere to all contractual obligations and avoid any actions that could lead to extracontractual claims. Franchisees should carefully review Section 6.Z and Section 14 of the franchise agreement to fully understand these obligations and potential liabilities.