Court Watch

Liquidated damages provisions are found in many franchise agreements, particularly in those used in the hotel industry. The fundamental purpose underlying these provisions is to allow the parties, at the time of contract formation, to agree to a specific methodology or formula to compute potential damages for certain subsequent contract breaches. Liquidated damages provisions can be extremely beneficial in helping parties to avoid the difficulty and expense that otherwise might be incurred to prove damages, and they are most useful in those situations where the calculation of actual damages would be complex and would require the analysis and opinions of expert witnesses. The basic goal of such provisions is to allow the non-breaching party to recover a fair and reasonable approximation of its actual damages, without having to go through the inordinate trouble and expense required to prove actual damages.