What constitutes a material default by the Developer that allows Fly Fitness to terminate the agreement immediately?
Fly_Fitness Franchise · 2024 FDDAnswer from 2024 FDD Document
ch transfer is subject to Franchisor 's prior written approval pursuant to Section 6.3 hereof. However, if (i) the sale to the transferee is not completed within one hundred twenty (120) days after the offer is given to Franchisor or (ii) there is any material change in the terms of the offer, the offer will again be subject to Franchisor's right of first refusal.
- 6.6 Death or Permanent Disability. The grant of rights under this Agreement is personal to Developer, and on the death or permanent disability of Developer, the executor, administrator, conservator, or other personal representative of Developer shall be required to transfer Developer's interest in this Agreement within six (6) months from the date of death or permanent disability to a third party approved by Franchisor. Failure to transfer in accordance with the forgoing will constitute a material default and all that is granted by this Agreement will terminate. A transfer under this Section 6.6, including without limitation, transfer by devise or inheritance, is subject to the conditions for Transfers in this Article 6 and unless transferred by gift, devise, or inheritance, subject to the terms of Section 6.5 above. For purposes of this Agreement, the term "permanent disability" means a mental or physical disability, impairment or condition that is reasonably expected to prevent or actually does prevent such person from providing continuous and material supervision of the operation of Developer's Fly Fitness outlet(s) and remaining development schedule during the six (6)-month period from its onset.
Immediately after the death or permanent disability of such person, or while the rights granted under this Agreement is owned by an executor, administrator, guardian, personal representative or trustee of that person, the Developer's Fly Fitness outlet(s) and remaining development schedule shall be supervised by an interim successor manager satisfactory to Franchisor, or Franchisor, in its sole discretion, may provide interim management at a fee equal to twenty percent (20%) of the Gross Revenue generated by the Developer's Fly Fitness outlet(s) during Franchisor's operation thereof, plus any and all costs of travel, lodging, meals and other expenses reasonably incurred by Franchisor, pending transfer of the Developer's Fly Fitness outlet(s) and remaining development schedule to the deceased or disabled individual's lawful heirs or successors.
7. DEFAULT AND TERMINATION.
7.1 Default and Automatic Termination. Developer shall be deemed to be in material default under this Agreement, and all rights granted herein shall automatically terminate without notice to Developer, if any Developer shall become insolvent or makes a general
assignment for the benefit of creditors; or if any Developer files a voluntary petition under any section or chapter of federal bankruptcy law or under any similar law or statute of the United States or any state thereof, or admits in writing his or her inability to pay debts when due; or if any Developer is adjudicated a bankrupt or insolvent in proceedings filed against any of Developer under any section or chapter of federal bankruptcy laws or under any similar law or statute of the United States or any state; or if a bill in equity or other proceeding for the appointment of a receiver of any Developer or other custodian for Developer's business or assets is filed and consented to by any of Developer;
Source: Item 23 — RECEIPT (FDD pages 45–182)
What This Means (2024 FDD)
According to Fly Fitness's 2024 Franchise Disclosure Document, there are several conditions under which the franchise agreement can be terminated immediately without opportunity to cure the default. These include misrepresenting or omitting material facts when applying for development rights, falsifying any reports required by Fly Fitness, or failing to comply with any applicable federal, state, or local laws related to the development and operation of the franchised business, including failure to pay taxes.
Additionally, Fly Fitness can terminate the agreement immediately if the developer fails to develop franchised businesses according to the Mandatory Development Schedule, attempts a transfer that violates the agreement's Article 6, is convicted of a felony or a crime that could damage the goodwill associated with the Fly Fitness brand, or receives an adverse judgment or consent decree involving allegations of fraud or unfair trade practices that could negatively affect the Fly Fitness system.
Further grounds for immediate termination include failing to comply with non-disclosure and non-competition covenants in Article 8, defaulting under any agreement with Fly Fitness or its affiliates (including franchise agreements, supplier agreements, or landlord agreements), or terminating the Development Agreement without cause.
Finally, the agreement can be terminated with immediate effect if the developer fails to transfer the agreement within six months of death or permanent disability to a Fly Fitness approved third party. These stipulations highlight the importance of adhering to legal and contractual obligations to maintain the Fly Fitness development rights.