What constitutes a material default for a Fly Fitness franchisee that leads to automatic termination?
Fly_Fitness Franchise · 2024 FDDAnswer from 2024 FDD Document
17.1 Default and Automatic Termination. Franchisee shall be deemed to be in material default under this Agreement, and all rights granted herein shall automatically terminate without notice to Franchisee, if Franchisee shall become insolvent or makes a general assignment for the benefit of creditors; or if Franchisee 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 its inability to pay its debts when due; or if Franchisee is adjudicated a bankrupt or insolvent in proceedings filed against Franchisee 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 Franchisee or other custodian for Franchisee's business or assets is filed and consented to by Franchisee; or if a receiver or other custodian (permanent or temporary) of Franchisee's assets or property, or any part thereof, is appointed by any court of competent jurisdiction; or if proceedings for a composition with creditors under any state or federal law should be instituted by or against Franchisee; or if a final judgment remains unsatisfied or of record for thirty (30) days or longer (unless supersedeas bond is filed); or if Franchisee is dissolved; or if execution is levied against Franchisee's business or property; or if suit to foreclose any lien or mortgage against the Franchised Business premises or equipment is instituted against Franchisee and not dismissed within thirty (30) days.
Source: Item 22 — CONTRACTS (FDD pages 44–45)
What This Means (2024 FDD)
According to Fly Fitness's 2024 Franchise Disclosure Document, a franchisee will be considered in material default, leading to automatic termination without notice, under specific circumstances. These include situations indicating financial instability or legal issues that severely impact the franchisee's ability to operate the business.
Specifically, automatic termination occurs if the franchisee becomes insolvent, makes an assignment for the benefit of creditors, files for bankruptcy, or admits in writing their inability to pay debts. Similarly, being adjudicated bankrupt or insolvent, consenting to the appointment of a receiver, having a receiver appointed, or facing proceedings for composition with creditors also trigger automatic termination. Furthermore, if a final judgment remains unsatisfied for 30 days or longer (unless a supersedeas bond is filed), the franchisee is dissolved, execution is levied against the business or property, or a foreclosure suit against the premises or equipment is instituted and not dismissed within 30 days, the agreement automatically terminates.
These conditions are typical in franchise agreements to protect the Fly Fitness brand and ensure the stability of the franchise system. Franchisees should be aware that these defaults result in immediate termination without an opportunity to correct the issue, highlighting the importance of maintaining financial and legal stability.