The 2023 Forms of Area Development Agreement and Franchise Agreement
2023 Issue 3 | GearedUp
28
In late May , PFHQ finished updating its Franchise Disclosure Document ( FDD ) and the accompanying standard forms of Area Development Agreement ( ADA ) and Franchise Agreement ( FA ). Now that the annual process of updating those documents is complete , I wanted to take the opportunity to write this article to : ( i ) explain the process PFHQ used to update the ADA and FA ; and ( ii ) identify some of the key changes included in the 2023 ADA and FA .
Before jumping into those two topics , I need to remind you that this article does not include a discussion of every change that might impact you and is not intended to be a substitute for personalized legal advice . Accordingly , I encourage you to read the FDD , ADA and FA in their entirety to understand what you are being asked to agree to if you sign one of these documents and to discuss any questions or concerns you have with your legal counsel . Otherwise , feel free to call me to discuss any questions or concerns you may have .
The Process for Updating the FDD
Each year , federal law requires franchisors to update their FDDs within 120 days after the close of the franchisor ’ s fiscal year . In connection with updating the FDD , most franchisors also take the opportunity to update their standard forms of franchise agreement and area development agreement . When doing so , franchisors are not required to involve their franchisees in the process . Fortunately for Planet Fitness ® franchisees , however , PFHQ has continued its practice of heavily involving the PFIFC in the process of updating its ADA and FA . This involvement allows the IFC , at a minimum , to ensure PFHQ understands how franchisees are likely to react to a proposed change , and at best , allows for significant improvement to the final terms of the agreements .
This year , the process kicked off with PFHQ providing the PFIFC an “ executive summary ” identifying certain key changes PFHQ proposed to make to the ADA and FA . After receiving that Executive Summary , the PFIFC and I responded to the proposed changes and provided PFHQ with several comments and concerns . From there , key PFHQ and PFIFC representatives ( along with legal counsel from both sides ) participated in several Zoom meetings to discuss the business and legal issues each side had identified and worked together to narrow the set of by J . Mark Dady proposed changes .
Following those meetings and additional discussions between the business and legal representatives , PFHQ sent over a redline of the ADA and FA . After exchanging a number of redlined drafts ( and numerous additional telephone calls , texts and emails !), the ADA and FA were ultimately finalized and attached to the 2023 FDD .
Key Changes in the 2023 ADA and FA
While I will not touch on every change in the ADA and FA ( again , please read the entirety of any document before you sign it !), there were some key changes I wanted to highlight for you . Keep in mind that these changes do not modify any existing agreements you have in place ( e . g ., changes to the new ADA do not impact existing ADAs ). Should you sign a new ADA or FA , whether in connection with an expansion , renewal or transfer , it would most likely be on the 2023 form , so it is important for you to understand what those versions of the ADA and FA say .
Removal of Development Grace Periods : One of the biggest changes in 2023 was PFHQ ’ s decision to remove Grace Periods from the ADA . Unfortunately , this is not a big surprise . PFHQ has claimed for quite some time that Grace Periods were too complicated , too long in duration and too burdensome to administrate , among other things . Fortunately , however , PFHQ did not simply remove the Grace Periods . Instead , PFHQ removed Grace