What constitutes a material event of default under the Fly Fitness Development Agreement?
Fly_Fitness Franchise · 2024 FDDAnswer from 2024 FDD Document
Developer acknowledges and agrees that the terms of the Mandatory Development Schedule are reasonable and viable based upon Developer's independent investigation and analysis. Failure by Developer to adhere to the Mandatory Development Schedule (including any extensions thereof approved by Franchisor in writing pursuant to Section 5.3 below) shall constitute a material event of default under this Agreement.
- 5.3 Extension of Mandatory Development Schedule. If Developer is unable to meet the Mandatory Development Schedule for any Franchised Business, Developer may seek a onetime six (6) month extension of the Mandatory Development Schedule from Franchisor. Any request for an extension must be in writing and submitted to Franchisor at least sixty (60) days prior to the Mandatory Open Date for such outlet. Franchisor shall not unreasonably withhold consent for such reasonable extension provided that Developer has (i) submitted its extension request in a timely manner; (ii) demonstrated diligent efforts to meet the original Mandatory Open Date; and (iii) has at all times acted in good faith and is otherwise fulfilling its obligations under this Agreement.
- 5.4 Conditions to Exercise Developer's Rights. All of the following conditions must be satisfied or waived, in Franchisor's sole discretion, before Franchisor grants Developer the right to develop an additional Franchised Business in accordance with Section 5.1 hereof and pursuant to a Franchise Agreement:
- 5.4.1 Developer shall (i) request Franchisor's then-current Franchise Disclosure
Source: Item 23 — RECEIPT (FDD pages 45–182)
What This Means (2024 FDD)
According to Fly Fitness's 2024 Franchise Disclosure Document, a material event of default can occur under the Development Agreement in several ways, with differing opportunities to cure the default. These defaults can trigger termination of the agreement and all rights granted to the developer.
Fly Fitness outlines defaults that automatically terminate the agreement without notice. These include insolvency or making a general assignment for the benefit of creditors. Additionally, certain actions constitute a material default allowing Fly Fitness to terminate the agreement immediately upon notice, without any opportunity for the developer to cure the default. These actions include misrepresentation or omission of material facts during the application for development rights, falsifying reports, failing to comply with applicable laws, rules, or regulations, failing to develop franchised businesses according to the Mandatory Development Schedule, attempting an unauthorized transfer of rights, being convicted of a felony or a crime damaging the brand's goodwill, receiving an adverse judgment related to fraud or unfair trade practices, failing to comply with non-disclosure and non-competition covenants, defaulting under any agreement with Fly Fitness or its affiliates, or terminating the agreement without cause.
There are also defaults that Fly Fitness allows the developer to cure. These include failing to pay amounts due to Fly Fitness, which can be cured within five days of written notice. However, Fly Fitness is only obligated to provide written notice for late payments twice in a 12-month period; a third late payment within that period constitutes a non-curable default. Similarly, failure to perform any non-monetary obligation can be cured within five days of written notice, or within a reasonable additional time if the default cannot be corrected within the initial five-day period, provided the developer is diligently working to correct it. As with monetary defaults, Fly Fitness is only obligated to provide written notice for non-monetary defaults twice in a 12-month period, with the third default, whether monetary or non-monetary, resulting in a non-curable default.
Furthermore, failure to adhere to the Mandatory Development Schedule constitutes a material event of default. However, a developer may seek a one-time six-month extension of the schedule by submitting a written request to Fly Fitness at least 60 days prior to the Mandatory Open Date, provided they have demonstrated diligent efforts to meet the original schedule and are otherwise fulfilling their obligations under the agreement. Upon termination or expiration of the Development Agreement, all rights and licenses granted to the developer immediately terminate, and the developer must cease all development operations and comply with non-disclosure and non-competition covenants.