How is the liquidated damages amount calculated if The Standardx agreement is terminated?
The_Standardx Franchise · 2025 FDDAnswer from 2025 FDD Document
| Section | Subject | Applicable Term | |
|---|---|---|---|
| 10.1 | Per room liquidated damages – condemnation | Five Thousand Dollars ($5,000) | |
| 16.5 | Liquidated Damages | (a) the lesser of thirty-six (36) or the number of months then remaining in this Agreement’s term had it not been terminated, multiplied by (b) the sum of (i) the Average Monthly Revenue times five percent (5%) for lost future Royalty Fees, plus (ii) the Average Monthly Revenue times three and one-half percent (3.5%) for lost future System Services Charges |
If Franchisee elects to terminate this Agreement pursuant to Section 10.2(b)(ii), Franchisee and its Owners must sign a Termination Agreement and pay a termination fee (in lieu of liquidated damages or Brand Damages) in an amount equal to the lesser of the liquidated damages calculated pursuant to Section 16.5 and the Net Recovery, provided that if the Net Recovery is less than zero, no termination fee shall be required upon signing the Termination Agreement.
If the parties do not otherwise agree to relocate the Hotel, then either party may terminate this Agreement immediately upon written notice to the other.
If Franchisee and its Owners sign a Termination Agreement, then Franchisee shall not be required to pay liquidated damages pursuant to Section 16.5 at the time of termination.
However, such Termination Agreement shall provide that if Franchisee or any of its Affiliates begins construction on or operation of a hotel of the same Hotel Type at any location within the Area of Protection at any time during the twenty-four (24) month period following the effective date of termination of this Agreement, other than a Hyatt Network Hotel or a hotel that was already under contract to be developed at that particular location within the Area of Protection on the date that the Termination Agreement is signed, then Franchisee or its Owners must pay Hyatt liquidated damages equal to the amount set forth in Exhibit B-1 multiplied by the number of guest rooms in that new hotel of the same Hotel Type.
The Commissioner has determined termination or liquidated damages to be unfair, unjust and inequitable within the intent of Section 51-19-09 of the North Dakota Franchise Investment Law. However, we and you agree to enforce these provisions to the extent the law allows.
Source: Item 18 — OTHER INCOME (LOSS), NET (FDD pages 187–399)
What This Means (2025 FDD)
According to The Standardx's 2025 Franchise Disclosure Document, liquidated damages are calculated based on a formula that considers the remaining term of the agreement and projected revenues. Specifically, the liquidated damages are determined by multiplying (a) the lesser of 36 months or the number of months remaining in the agreement's term by (b) the sum of (i) the Average Monthly Revenue times 5% (for lost future Royalty Fees) plus (ii) the Average Monthly Revenue times 3.5% (for lost future System Services Charges). This calculation aims to compensate The Standardx for losses resulting from early termination.
If The Standardx agreement is terminated due to condemnation, and the franchisee and franchisor do not agree to relocate the hotel, either party can terminate the agreement. If the franchisee signs a Termination Agreement, they will not be required to pay liquidated damages. However, the Termination Agreement stipulates that if the franchisee begins construction or operation of a similar hotel within the Area of Protection within 24 months of termination, they must pay liquidated damages equal to the amount set forth in Exhibit B-1 multiplied by the number of guest rooms in the new hotel.
If the hotel is damaged by a casualty such as fire or flood, and the cost to repair exceeds the Damage Threshold, the franchisee can elect to terminate the agreement. In this case, the franchisee must sign a Termination Agreement and pay a termination fee, which is the lesser of the liquidated damages calculated per Section 16.5 or the Net Recovery. If the Net Recovery is less than zero, no termination fee is required. However, if the franchisee later builds or operates a similar hotel at the site within 24 months, they must pay liquidated damages equal to the difference between what would have been payable under Section 16.5 at termination and the amount actually paid at termination.
It's important to note that in North Dakota, the Commissioner has determined that termination or liquidated damages may be considered unfair, unjust, and inequitable under the North Dakota Franchise Investment Law. However, The Standardx states that they will enforce these provisions to the extent the law allows. Prospective franchisees should be aware of these calculations and conditions, as they can significantly impact the financial obligations upon termination of the franchise agreement.