When Modifying Your Lease , Don ’ t Forget About
Your Franchise Agreement
2020 Issue 3 | GearedUp
As Planet Fitness ® franchisees continue to experience challenges related to COVID-19 , almost all franchisees are attempting to modify their existing agreements to receive some relief . This includes negotiations with PFHQ ( to extend obligations related to re-equips , remodeling and development obligations ); negotiations with lenders ( to address payment and covenant issues ); and negotiations with landlords ( to address potential rent abatement / deferral and other modifications to leases ). Each negotiation involves different considerations and different strategies , but one thing franchisees may fail to keep in mind is how a modification to one agreement may impact a seemingly unrelated agreement .
Specifically , franchisees who are working with their landlords to modify the expiration date of their lease ( e . g ., receiving X months of rent abatement / deferral in exchange for an extension to the lease of Y months ) need to be aware that doing so may cause a significant misalignment in the expiration date of the lease and the expiration date of the Franchise Agreement . Fortunately , there is a solution to this issue .
Under the standard form of Franchise Agreement , franchisees have the right to request a change to the expiration of their Franchise Agreement to match up with the expiration of their lease . Pursuant to this right , franchisees can request an extension of their Franchise Agreement of up to nine by J . Mark Dady months or a reduction of up to two years . This is a great benefit for franchisees , as having a Franchise Agreement expire significantly before or after a lease can cause problems and a loss of leverage with landlords who may know a franchisee has no choice but to renew the lease because the franchisee has obligations under the Franchise Agreement to keep operating . In “ normal times ,” however , the right to modify the Franchise Agreement expiration date is only available until three months after the club
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