When transferring a Fitstop franchise, must the franchisee provide a personal covenant to the transferee not to divert business from Fitstop and/or its franchisees?
Fitstop Franchise · 2024 FDDAnswer from 2024 FDD Document
| h. "Cause" defined—non-curable defaults | Section 16.1 | Non-curable defaults include being convicted of, pleading guilty or no contest to, or receiving deferred adjudication for a felony, crime of moral turpitude, or certain other crimes; attempts to hack or crack our computer software; disclosure of confidential information; abandonment; unauthorized transfer; material misrepresentations when you purchase the franchise; repeated failure to comply with Franchise Agreement or Manual requirements, even if corrected; or if you are declared insolvent or bankrupt. |
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| i. Franchisee's obligations on termination/nonrenewal | Section 16 | You must: (i) immediately cease use of all our Proprietary Marks, Confidential Information, trade secrets, and all aspects of the Franchise System; (ii) immediately return to us all advertising materials, products, or writing that contain, bear or otherwise use and of the Marks and IP, as well as all materials containing Confidential Information; (iii) pay all outstanding amounts due and owing to us under the Franchise Agreement; (iv) assign all telephone numbers and domain names associated with the Franchised Business to us (at our option) or otherwise cancel any registration for the same; (v) afford us (directly or via an operating affiliate) the right to (a) assume the lease for your Approved Premises, and/or (b) acquire all other operating assets associated with the Franchised Business at net depreciated book value, as detailed more fully in your Franchise Agreement; and (vi) comply with all confidentiality, non-disclosure and other post-term restrictive covenants detailed more fully below in this Item 17 Chart. |
| j. Assignment of contract by franchisor | Section 15.1 | The Franchise Agreement is fully assignable by us. |
| k. "Transfer" by franchisee—definition | Section 15 | Includes transfer of contract or assets or ownership change. |
| 1. Franchisor's approval of transfer by franchisee | Section 15.2 | We have the right to approve all transfers. |
| m. Conditions for franchisor approval of transfer | Section 15.11 | Conditions include: you must be in full compliance with your Franchise Agreement; you must pay us all amounts due; transferee and its managers must satisfactorily complete our training program; transferee executes our thencurrent form of Franchise Agreement; you or transferee must pay transfer fee; we must approve written agreements regarding transfer; you must supply us with any additional information we reasonably require regarding the transfer; you must provide, as a personal covenant to the transferee, in addition to your covenants to us, an agreement not to seek to divert business from us and/or our franchisees; and you must sign a general release and other documents we require. Please also see post-term covenants described below in this Item 17 Chart. |
Source: Item 17 — RENEWAL, TERMINATION, TRANSFER, AND DISPUTE RESOLUTION (FDD pages 42–47)
What This Means (2024 FDD)
According to Fitstop's 2024 Franchise Disclosure Document, if you are transferring your franchise, you must provide a personal covenant to the transferee. This covenant is an agreement that you will not attempt to divert business away from Fitstop or its other franchisees.
This requirement is in addition to any covenants you already have with Fitstop itself. The purpose of this covenant is to protect the Fitstop system and its franchisees from any potential harm that could be caused by the transferring franchisee after the transfer is complete.
This condition is one of several that must be met for Fitstop to approve the transfer of your franchise. Other conditions include being in full compliance with your Franchise Agreement, paying all amounts due to Fitstop, ensuring the transferee and its managers complete the training program, and having the transferee execute the current form of the Franchise Agreement. You or the transferee must also pay a transfer fee, and you must sign a general release and other documents that Fitstop requires.