What is a Health Club or Spa Bond?
Many states across the country require a surety bond called a health club bond to indemnify members of health facilities for advance membership fees paid in a situation where the club unexpectedly shuts down or otherwise ceases operations. If the gym closes, the bond may be called upon to reimburse members for prepaid fees for unrealized membership terms (i.e. services paid but not received). Several states also extend the bond obligation to cover fraudulent or illegal actions committed by employees or owners of the health club.
Some variation of the health club bond is required in thirty states for gyms, health spas, fitness clubs, martial arts studios, bodybuilding clubs, weight loss centers and similar businesses. A separate bond is commonly required for each location. States with the most extensive health club requirements include: California, Florida, Maryland, South Carolina, New York, Texas, and Tennessee. For more information along with pricing, coverage amounts and state by state bond requirements, refer to this complete guide on health club, spa, and gym bonding requirements.
How Much do Health Club Surety Bonds Cost?
Like most surety bonds, health club surety bond prices range based on the personal credit history and experience of the applicants (i.e. the owner/operator(s) of the health club). The cost of the bond is referred to as the premium and is typically paid in advance for a one, two, or a three-year term. The bond can be renewed for additional periods at the expiration of the current term.
Bond coverage amounts typically range from $10,000 to $50,000 depending on the current state requirements and in some cases, the number of memberships or club revenues may also play into the coverage amount required by the state.
One unique aspect of health club surety bonds is that they often provide a guarantee that membership fees paid in advance are returned when the gym closes unexpectedly. This means that the bond has supports a financial guarantee and cannot be financed in most cases. Regardless, health club surety bonds are relatively affordable at typical costs of 1% to 3% of the bond amount. For example, if the state requires a $20,000 bond, the annual cost would usually be in the range of $200 to $600 per year.
What is Included in the Health Club Bond Documentation?
A Health Club Surety Bond is essentially a legal contract that is prepared by the surety company based on the state mandated bond language along with information obtained from the applicant. Following is a list of items that will be included as part of your official bond package provided by your surety bond agent.
- Exact legal name and location of the health club (applicant)
- Bond coverage amount
- Name and contact information of the surety company backing the bond
- Date the bond becomes effective and expires
- Signatures of the surety officer or Agent Attorney in fact
- Corporate seal of the surety company and the applicant (if applicable)
- Power of Attorney