Damages for Breach of Franchise Agreement

septembre 17, 2023

Damages for Breach of Franchise Agreement: A Comprehensive Guide

Franchise agreements are essential documents that outline the legal relationship between a franchisor and franchisee. In these agreements, franchisors grant franchisees the right to use their trademarks, systems, and know-how to operate a business in exchange for payment of royalties and fees.

However, when either party breaches the terms of the agreement, it can lead to disputes that may result in litigation. In such cases, the injured party may seek damages to compensate for the loss suffered. In this article, we’ll explore the different types of damages available for breach of a franchise agreement.

Types of damages

1. Compensatory damages

Compensatory damages aim to put the injured party in the same position they would have been in if the breach had not occurred. These damages may include:

– Lost profits: If the breach caused the franchisee to lose profits, they may be entitled to compensation for lost income. This may require an analysis of the franchisee`s financial records to demonstrate the loss.

– Extra expenses: If the franchisee incurred additional expenses due to the breach, such as legal fees or costs associated with finding a new location, they may seek reimbursement from the franchisor.

– Diminished value: If the franchisor breaches the agreement, and the franchisee’s business loses value because of it, the franchisee may seek compensation for the reduced value.

2. Consequential damages

Consequential damages are losses incurred indirectly due to the breach of the franchise agreement. These may include:

– Loss of customers: If the breach caused the franchisee to lose significant customers or long-term contracts, they may be entitled to compensation for the lost future income.

– Loss of reputation: If the breach caused damage to the franchisee`s reputation, they may seek compensation for the loss of future business opportunities.

– Other business losses: These may include the costs of relocating the business, closing the business, or investing in new equipment or systems due to the breach.

3. Liquidated damages

Some franchise agreements allow for liquidated damages, which are pre-determined damages established in the agreement in the event of a breach. Liquidated damages can provide a degree of certainty and help avoid litigation and disputes over the amount of damages. However, courts may not uphold liquidated damages if they are found to be excessive or unreasonable.

4. Punitive damages

Punitive damages are a form of compensation awarded to punish the defendant for malicious or intentional wrongdoing. However, punitive damages are not commonly awarded in breach of contract cases. They are typically reserved for cases involving fraud, intentional or grossly negligent conduct, or other egregious behavior.


In summary, damages for breach of a franchise agreement can include compensatory damages, consequential damages, liquidated damages, and punitive damages. The type and amount of damages will depend on the specific circumstances of the breach, the language of the franchise agreement, and the evidence presented. Franchisors and franchisees should carefully review and understand the terms of their agreement and seek legal counsel when necessary to avoid disputes and minimize the risk of breaches.

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