Can Fly Fitness void a transfer of the Franchise Agreement made without its approval?
Fly_Fitness Franchise · 2024 FDDAnswer from 2024 FDD Document
- 6.2 Restrictions on Transfers by Developer. Developer's rights and duties under this Agreement are personal to Developer, and Franchisor has made this Agreement with Developer in reliance on Franchisor's perceptions of the individual and collective character, skill, aptitude, attitude, business ability, and financial capacity of Developer. Thus, no transfer, as hereafter defined, may be made without Franchisor's prior written approval. Franchisor may void any transfer made without such approval.
- 6.3 Transfers by Developer. Developer shall not directly or indirectly sell, assign, transfer, give, devise, convey or encumber this Agreement or any right granted or interest herein or hereunder (a "Transfer") or suffer or permit any such assignment, transfer, or encumbrance to occur by operation of law unless Developer first obtains the written consent of Franchisor, which Franchisor may or may not grant in Franchisor's sole discretion, and subject to the following:
- 6.3.1 The proposed transferee must be an individual of good moral character and otherwise meet Franchisor's then-applicable standards for multi-unit franchisees.
- 6.3.2 The transferee must have sufficient business experience, aptitude and financial resources to operate multiple Franchised Businesses and to comply with this Agreement;
- 6.3.3 The transferee has agreed to complete Franchisor's Initial Management Training Program to Franchisor's satisfaction;
- 6.3.4 Developer has paid all amounts owed to (i) Franchisor pursuant to this Agreement and all Franchise Agreements and other agreements between Franchisor and/or Franchisor's affiliates and Developer and (ii) third-party creditors;
- 6.3.5 The transferee has executed Franchisor's then-standard form of Multi-Unit Development Agreement, which may have terms and conditions different from this Agreement, for a term no less than the unexpired term of future development obligations due pursuant to the Mandatory Development Schedule of this Agreement;
Source: Item 23 — RECEIPT (FDD pages 45–182)
What This Means (2024 FDD)
According to Fly Fitness's 2024 Franchise Disclosure Document, Fly Fitness has the authority to void any transfer of the Franchise Agreement made without its prior written approval. The document emphasizes that the rights and duties of the developer (franchisee) are personal, and Fly Fitness enters the agreement based on their assessment of the franchisee's character, skills, business acumen, and financial capacity. This underscores the importance Fly Fitness places on who is operating their franchises.
This provision protects Fly Fitness by ensuring that only qualified and approved individuals or entities become franchisees. It allows Fly Fitness to maintain consistent standards and protect its brand reputation. A prospective franchisee should understand that they cannot sell or transfer their franchise to just anyone; they must obtain Fly Fitness's consent first.
To gain approval for a transfer, the proposed transferee must meet Fly Fitness's standards for multi-unit franchisees, possess sufficient business experience and financial resources, and agree to complete the initial management training program. Additionally, the franchisee must have paid all outstanding amounts owed to Fly Fitness and its affiliates, as well as third-party creditors. The transferee must also execute Fly Fitness's then-standard form of Multi-Unit Development Agreement. These conditions ensure that any new franchisee is well-prepared and financially stable, minimizing the risk to the Fly Fitness system.
This requirement is typical in franchising, as franchisors need to control who joins their system to protect brand standards and the interests of other franchisees. A prospective Fly Fitness franchisee should carefully consider these transfer restrictions and discuss any potential future exit strategies with Fly Fitness before signing the agreement.