How is the liquidated damages amount calculated for early termination of the Spray Net agreement?
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 set at 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 applicable annual Minimum Gross Sales figure is determined by two factors: the number of territories the franchisee has purchased and the length of time the franchisee has operated the Spray Net franchised business. This means franchisees with more territories or longer operating histories could face higher liquidated damages upon early termination.
It's important to note that these liquidated damages are in addition to any other remedies Spray Net may pursue against the franchisee for breaches of restrictive covenants (as found in Section 14 of the agreement) or for extracontractual claims like fraud or unfair trade practices. This could significantly increase the financial burden on a franchisee who terminates the agreement early, as they may face both liquidated damages and additional legal claims.