What is a liquidated damages clause in a franchise agreement?
Minneapolis franchise law attorney Kirk Reilly defines a liquidated damages clause.
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Liquidated damages, that’s a legal term that basically means a set formula that the parties agree to for if the contract is breached and if the franchisor is entitled to damages. You don’t have to litigate what it is. It’s right there. It is a set number of years of royalties or a percentage of some number over some period of time. It’s what the parties negotiate, because they all agree it would be really hard for us to figure out what the damages would be over a long period of time, so we’re gonna put it in our contract. That’s what liquidated damages involve.