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    Buying an existing franchise business and making it non-franchise
    Hi, I'm planning to buy two existing Snap Fitness franchise gyms. They sell for 55K each or 100K for both including all equipment. The equipment alone is worth more than the price. The owner currently doesn't make much money from it. I believe I can improve on it and bring in more memberships. If I buy, I have no intention keeping them as franchised gyms to save on royalty fee. What is the legal implication of going from franchised to a non-franchised gym? I have plan on using the same business concept (open 24/7) under a different name.


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    With a new franchise territory you pay the franchisor an initial franchise charge plus, normally, some training and set-up expenses. A new enterprise has to grow from scratch so will now not generate profit for some time and could require a excessive stage of working capital to meet the running expenses as it grows.


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    Generally speaking,

    Franchisors are quite aware that there are those who wish to replicate their business model, so they take precautions. As such, what you are proposing may not be possible for several reasons:

    1) If you are buying a franchise from an existing franchisee you will have to be approved by the franchisor. If they approve you and before they approve the actual sale you will most likely be asked to sign non-compete and non-solicitation agreements. Those agreements will render your idea to be legally impractical because you will not be able to open a different gym and compete with after the sale goes through.
    2) The current franchisee may not actually own the equipment, rather it may be leased to the franchisee, so you won't be able to actually buy it. Many franchisees actually don't understand this point and think they own their equipment when in fact they don't.
    3) Similar analysis applies to the store location issue. Typically the named lessee is not the franchisee but the franchisor who is then able to control the location. The franchisee is often a guarantor and also provides the security deposit that will be forfeited in the event of a lease default. In cases where the franchisee is the named lessee, the lease would have termination provisions in the event the lessee exits the franchise or may have a 'step in deed' provision which the franchisor can execute (i.e. step instead of the franchisee).

    Nonetheless, to explore the reality of your idea I would first ask the franchisee to review the franchising agreement and lease to validate the above points. Obviously it's a good idea to consult with an attorney.

    Roman R. Fichman, Esq.
    www.TheLegalist.com

    Business Law & IP * Startups * Technology * Buy-Sell Businesses * Due Diligence

    DISCLAIMER: This post has been written for educational purposes only and was not meant to be legal advice and should not be construed as legal advice or be relied upon. No intention exists to create an attorney-client relationship or any other special relationship or privilege through this post. The post may contain errors, inaccuracies and/or omissions. You should always consult an attorney admitted to practice in your jurisdiction for specific advice. This post may be deemed as Attorney Advertising.


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    Purchasing a current establishment is an incredible method to turn into an establishment, and it has a large group of critical advantages. Be that as it may, similarly likewise with any speculation, you have to get your work done, and you have to have qualified legitimate and business consultants working with you.


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    If it can,t be run as franchise business I think it will not be successful as non-franchise business because people always prefer franchises over non-franchises as they have already reputation in the market as compare to new business.


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