$ 25,000 or, if more than two clubs are being transferred at one time, $ 10,000 per club being transferred, unless you are operating under the 2017 form of Franchise Agreement, in which case the fee is $ 10,000( even if the transfer involves only one club). PFHQ can also charge you for any external( i. e., not in-house) legal and administrative fees it incurs in connection with the transfer.
Second, PFHQ can require the signing of its then-current form of Franchise Agreement in certain situations. If you are transferring a controlling interest to a third party or a controlling interest to an immediate family member or employee( who is not already an owner), then Planet Fitness has the right to require the transferee to sign its then-current form of Franchise Agreement. If, however, you are transferring a non-controlling interest to a third party or a non-controlling interest to an immediate family member or employee( who is not already an owner), then you will not be required to sign a new Franchise Agreement and the transfer will most likely be accomplished by simply amending the information related to ownership( and requiring the new owners to agree to the confidentiality and non-compete obligations).
Third, and most importantly, even if the transferee is required to sign a new Franchise Agreement in connection with the transfer, the transferee may, in certain situations, be able to keep your same royalty rate( i. e., continue paying a 5A or 6.59A royalty rate, rather than a 7A royalty rate). More specifically, if the transfer requires a new Franchise Agreement and your existing royalty rate is 5A or higher( e. g., 5A, 6.59A or 7A), then PFHQ is required to amend the new Franchise Agreement to permit the transferee to keep the same royalty rate you had in your existing Franchise Agreement.
In short, if your Franchise Agreement is the 2015, 2016 or 2017 form( or an earlier form of the Franchise Agreement, but you signed the MOU Side Letter) and your existing Franchise Agreement has a royalty rate of 5A or higher, then the transferee should be able to keep your existing royalty rate upon transfer, even though they may be required to sign the then-current form of Franchise Agreement. Unfortunately, if your existing Franchise Agreement provides for a“ sliding scale” royalty, that royalty rate is not transferable, and the transferee will, absent unique circumstances, likely be forced to pay a royalty rate of 7A upon transfer.
Amendments extending that“ lock” for two years at the 6.59A royalty rate. For example, if you signed an Area Development Agreement on Jan. 1, 2016, which gave you the right to sign 5A Franchise Agreements for two years, and you signed the Rebate to Royalty Area Development Agreement Amendment, you would now have the right to sign 6.59A Franchise Agreements for two additional years( i. e., until Jan. 1, 2020). The Rebate to Royalty Area Development Agreement Amendment also makes this“ lock” transferable to a new owner, meaning that the new owner can sign 6.59A Franchise Agreements for a period of time, rather than being forced to sign 7A Franchise Agreements, even if the new owner is required to sign a new Area Development Agreement.
Conclusion
While there are many moving parts to a transfer, hopefully the information in this article gives you some insight into the various types of transfers you may want or need to make as a franchisee, along with answers to some of the initial questions you might have related to those transfers. Prior to actually initiating a transfer, however, I do strongly recommend that you reach out to an attorney, as this article is not intended to( and does not) address every issue that might arise in connection with a transfer. G
J. Mark Dady is a partner at Dady & Gardner, P. A. His practice is focused on the representation of franchisees, dealers and distributors located throughout the United States. For more information on Mark and Dady & Gardner, P. A., visit www. dadygardner. com; call him at 612-359-5488; or email mdady @ dadygardner. com.
Rebate to Royalty Amendments
In 2017, due to negotiations between PFHQ, PFIFA and the FAC, PFHQ offered all of the existing franchisees in the system the ability to execute the Rebate to Royalty Amendments. Those amendments, if you executed them, may also grant you certain rights in connection with transfers.
Under the Rebate to Royalty Franchise Agreement Amendments, irrespective of what form of Franchise Agreement you are operating under( or whether you signed the MOU Side Letter), if your existing Franchise Agreement provides for a royalty rate of 5A or higher, then PFHQ has agreed that, upon transfer, the transferee can continue to pay the same royalty rate you had for the remainder of your Franchise Agreement’ s term. If you have a“ sliding scale” royalty rate, however, this royalty rate is, absent unique circumstances, not transferable, meaning the transferee will likely be required to pay a 7A royalty rate upon transfer.
For existing Area Development Agreements with a twoyear“ lock” on the royalty rate( meaning you have the right to sign Franchise Agreements at the 5A royalty rate for two years from your Area Development Agreement’ s Effective Date), PFHQ offered Rebate to Royalty Area Development Agreement
GearedUp | 2018 Issue 1
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