What happens to the Development Fee when a Fly Fitness franchisee executes the initial Franchise Agreement?
Fly_Fitness Franchise · 2024 FDDAnswer from 2024 FDD Document
- 4.2 Application of Development Fee. Contemporaneous with the execution of this Agreement, Developer shall execute the initial Franchise Agreement for the first Franchised Business to be established pursuant to the Mandatory Development Schedule. Developer shall receive the applicable credit from the Development Fee, which shall be applied to the Initial Franchise Fee due under the initial Franchise Agreement. Provided that Developer is in compliance with the Mandatory Development Schedule and is not otherwise in breach of this Agreement, upon the execution each of additional Franchise Agreement for a Franchised Business to be developed hereunder, Developer shall receive the applicable credit from the Development Fee, which shall be applied to the Initial Franchise Fee payable pursuant to each such additional Franchise Agreement. Upon Franchisor's approval, Developer may enter into the initial Franchise Agreement or any subsequent Franchise Agreement as required under this Agreement using a newly formed entity, such as a limited liability company, corporation or partnership, for the sole purpose of entering into a Franchise Agreement and operating the Franchised Business pursuant thereto, provided that Developer shall also personally sign such Franchise Agreement as a principal.
Source: Item 23 — RECEIPT (FDD pages 45–182)
What This Means (2024 FDD)
According to Fly Fitness's 2024 Franchise Disclosure Document, when a developer executes the initial Franchise Agreement, they will receive an applicable credit from the Development Fee. This credit is then applied to the Initial Franchise Fee that is due under the initial Franchise Agreement. This means that a portion of the Development Fee already paid will be used to offset the cost of the Initial Franchise Fee for the first Fly Fitness location.
This credit is contingent upon the developer's compliance with the Mandatory Development Schedule and not being in breach of the Multi-Unit Development Agreement. For each additional Franchise Agreement executed for subsequent Fly Fitness locations, the developer will continue to receive applicable credits from the Development Fee, which will be applied to the Initial Franchise Fee payable for each additional franchise, provided they remain in compliance with the development schedule and are not in breach of the agreement.
Fly Fitness also allows the developer to enter into the initial or subsequent Franchise Agreements using a newly formed entity, such as an LLC, corporation, or partnership, specifically for the purpose of entering into the Franchise Agreement and operating the Franchised Business. However, the developer must also personally sign the Franchise Agreement as a principal in such cases. This provides some flexibility in structuring the business ownership while ensuring the developer's personal commitment to the agreement.