AN OVERVIEW OF
Common Transfer Situations
A
little over two years ago, I
wrote an article in Geared Up
providing a brief overview of
common transfer situations in
the Planet Fitness® system and how those
transfer situations could impact both the
seller and the purchaser (e.g., would PFHQ
require the execution of a new Franchise
Agreement, would there be a transfer fee,
would the royalty rate transfer, etc.). Given how
frequently franchisees continue to raise questions
about this topic with me (and others), as well as some changes
that have occurred in the system, I thought it would be helpful to
provide an updated version of that article.
As I said before, every transfer is unique, both factually and
legally, so be sure to review your agreements carefully and obtain
legal counsel early in any transfer process. But set forth below are
some of the legal rights and responsibilities you need to be aware
of related to the most common types of transfers and, hopefully,
answers to some of the most common questions related to them.
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Transfers to Existing Owners, Immediate Family
Members and Employees, and Transfers for Estate
Planning Purposes
In the event you are operating under the 2015, 2016 or 2017
form of Franchise Agreement (or operating under an earlier version
of the Franchise Agreement, but signed the MOU Side Letter
PFHQ offered to all franchisees in late 2015), Planet Fitness has
agreed to treat certain types of transfers more leniently than other
transfers. More specifically, the more lenient transfers include
transfers of: (1) a non-controlling interest (generally meaning
less than 50 percent) in your business to an immediate family
member of an existing owner or an employee of your business; (2)
a controlling or non-controlling interest to an existing owner; or
(3) any interest to an entity controlled by an existing owner for
estate planning purposes. If you are engaging in any of these types
of transfers, then you will not be required to sign a new form of the
Franchise Agreement, meaning your royalty rate will not change
upon transfer, and you will not have to pay a transfer fee to PFHQ
in order to perform the transfer.
You will,
however, have
to satisfy certain
other requirements,
which include
making sure you
are current on your
financial obligations
by Mark Dady
to Planet Fitness and its
preferred vendors, reim-
bursing PFHQ for any external legal fees it incurs
(but you will not be required to reimburse PFHQ for any in-house
legal fees), signing a general release, and otherwise receiving
PFHQ’s consent prior to making the transfer, which PFHQ has
agreed not to unreasonably withhold if the appropriate conditions
are met.
In the event you are not operating under the 2015, 2016 or
2017 form of Franchise Agreement and, instead, are operating
under an older form of Franchise Agreement and have not signed
the MOU Side Letter, then PFHQ typically is not required to
treat transfers to existing owners, immediate family members
and employees any differently than it would any other transfer,
meaning that you could be required to sign a new Franchise
Agreement with a different royalty rate. Prior to accepting this,
however, it is certainly worth explaining your situation to PFHQ
and your counsel to see if something can be negotiated so that no
new Franchise Agreement is required.
Transfers to Third Parties and Transfers of a
Controlling Interest to Immediate Family Members
and Employees
Assuming, again, you are operating under the 2015, 2016 or
2017 form of Franchise Agreement (or operating under an earlier
version of the Franchise Agreement, but signed the MOU Side
Letter PFHQ offered to all franchisees in late 2015), and you want
to transfer: (1) a controlling or non-controlling interest to a third
party; or (2) a controlling interest to an immediate family member
of an existing owner or to an employee, then a different set of rules
applies than those described above.
First, PFHQ can require you to pay a transfer fee equal to