Gym Contracts, Licenses and Health Club Bonds

A gym's insurance requirements come mostly from its landlord, lender, franchisor and equipment lessors, because members do not ask for certificates. Its licensing risk comes from state health club laws. In some states these require registration and a bond or other security, and they set rules for membership contracts. Local permits for pools, saunas and food add more, and some of these do not transfer to a buyer. This guide is for new owners of gyms and studios who want to know what to collect, what to reissue and what to ask counsel before the first member signs.

The short answer

Members generally do not ask for certificates. Your lease, loan, franchise agreement and equipment leases set the insurance terms you must meet.
Many states regulate health club contracts, and some require registration and security such as a bond. The rules differ by state, so check each location.
Florida's health studio registration cannot be transferred to a buyer, and New York's security instrument must be replaced after a change in ownership.
A bond is not insurance for you. The surety expects to be repaid.
Match the policy, not just the certificate, to each contract, and treat this as general information for deal counsel to confirm.

Which contracts put insurance demands on a gym?

Walk through each document the business signed and list what it asks you to carry. A certificate of insurance is a summary, so check the endorsements behind it. See why a certificate is not coverage.

Contracts and their typical insurance asks
Contract	What it commonly asks for	What to check
Lease	The landlord as an additional insured, a waiver of subrogation, minimum limits, coverage for your contents and improvements, business income and workers' comp	Whether the endorsements are on the policy, and whether the lease is assigned to you or a new one is signed. A gym lease can run many years, so the insurance clause can bind you for a long time, and assignment usually needs the landlord's consent. Have counsel confirm both. See lease insurance requirements
Franchise agreement	Required insurance types and levels, set by the agreement and manual	Read the agreement itself for the required types and limits
Loan documents	Hazard coverage on pledged equipment at replacement cost with a lender's loss payable clause, flood in special hazard areas, sometimes life insurance	Evidence of insurance on the closing checklist. See SBA lender insurance requirements
Equipment lease or financing	Specific insurance and loss payee wording for machines you do not own outright	Who owns each machine and who has a lien
Billing and payment processor agreements	Data security duties and sometimes cyber coverage	Whether the contract can be assigned, and who holds member data
Corporate wellness, school or city contracts	Certificates, additional insured status and higher limits, if you have any	Each contract's insurance clause. See checking customer contracts against your policies

Two terms come up often: an additional insured is a party added to your liability policy at your request, and a waiver of subrogation stops your insurer from pursuing a party after it pays your claim.

What do state health club laws require?

Many states have a health club or health studio statute that regulates membership contracts, and some require registration and a bond or other security. Others may have no such law, so check each state where you have a location. Two examples show how different the rules can be. The summary below is general, and the statutes control.

Two examples of state health club rules
Topic	New York	Florida
Who is covered	Businesses offering instruction or facilities for physical fitness, including gyms, studios and martial arts or self defense schools, with some exemptions	Health studios, with exemptions such as certain personal trainers
Registration	File a security instrument with the Secretary of State before signing contracts	Register each location annually with the Department of Agriculture and Consumer Services, $300 per location
Security	A corporate surety bond, irrevocable letter of credit or certificate of deposit, from $50,000 for terms up to 12 months to $150,000 for terms over 24 and up to 36 months, with added amounts for three or more locations. Exemptions exist, for example for some monthly-dues-only offerings that meet the statute's conditions, so confirm with counsel whether the club qualifies	$25,000 as a bond, letter of credit or certificate of deposit, unless an exemption applies or the department reduces it
Contract rules	36 month cap; $3,600 a year cap; three business day cooling off period; cancellation for death, long disability, a move of more than 25 miles or discontinued services	Contract and cancellation terms are set in other sections of the health studio statute (Florida Statutes chapter 501). Ask counsel for the current terms
Other duties	A defibrillator and a trained staff member at clubs with 50 or more members, and a posted notice	A separate statute gives immunity to people who use a defibrillator but does not require one
Penalty	Contracts that break the law are void, and civil fines up to $2,500 a violation	Set by statute. Ask counsel what penalties apply for noncompliance

Other states may have different security amounts, term caps and cancellation rights, and some may have no such law. Ask deal counsel to check each location, and ask your broker whether any required bond or policy needs particular wording.

What transfers at a sale and what must be reissued?

Treat nothing as transferred until the issuing agency says so. The deal structure matters but does not settle everything. In a stock purchase the company stays the same, yet a change of control can still trigger new filings: New York treats a club as new when 30 percent or more of a corporation's stock changes hands. In an asset purchase you generally need your own registrations. Ask deal counsel how your structure affects each one.

What typically passes at a gym sale
Item	What to know	Action
Florida health studio registration	Cannot be transferred. A new owner registers as a new studio and gives the prior license number	Register and file security, unless exempt, before collecting fees. Ask the department whether a share purchase of the same company counts as a new owner
New York security instrument	A change in ownership makes the club new, which for a corporation means a 30 percent or greater stock change, and the successor must obtain its own instrument while the prior one can remain liable for existing members	File a new instrument before signing new member contracts
Membership contracts	Existing contracts are often the main asset and the main compliance exposure. A noncompliant one can be void	Have counsel review the form and any refund duties
Massage, cosmetology and dietitian licenses	Issued to the individual or business named on the license, and whether one can pass to a buyer varies by state and board	Ask each licensing board what a change of ownership requires and verify each provider's license
Local business license, certificate of occupancy, fire inspection, pool and spa permits, food permits	They vary widely by city, county and state	Ask each authority what a change in ownership requires, and put the answer in your closing checklist

See licenses, permits and registrations when you buy a business.

What happens if you skip the security step?

A hypothetical example. A buyer purchases the assets of a New York club with about 600 members on one year contracts. The seller's bond is in the seller's name, and the buyer plans to sign new members the Monday after closing. Under the statute, a club that is not exempt must file its security before signing a service contract, and the security for one location and terms up to 12 months is $50,000. If the buyer signs members first, those contracts may be unenforceable against the members, and fines can apply. The fix is simple and early: ask the surety or bank for the new instrument as part of the closing checklist, and ask counsel whether the old one still answers for existing members.

The same logic applies in Florida, where a studio must be registered before it collects fees, and the registration is new. A buyer who learns this after taking the first month of dues has a harder conversation than one who asked in diligence.

Is a health club bond insurance?

No. A surety bond protects the party it names, such as members or the state. If the surety pays a claim, the club that bought the bond (the principal) is expected to repay it, and the surety may ask for an indemnity agreement, so ask what it will require. A letter of credit or deposit is an alternative where the statute allows one, and it ties up cash or a credit line. None of these replaces general liability. See do surety and license bonds transfer, the library's surety bonds page and surety bond versus liability insurance.

Which checks belong in the first month?

Collect the lease, franchise agreement, loan documents, equipment leases and processor contract, and list every insurance clause.
Compare each clause with the policy endorsements, not only the certificate. See certificates the seller issued and a certificate for a landlord.
For a franchised gym, ask the franchisor what it requires at transfer, and ask your lender whether the brand is on the Small Business Administration (SBA) franchise directory. See buying a franchise resale.
Confirm each state's registration, security and posting duties, and calendar annual renewals.
Check staff certifications, including first aid and defibrillator training where a state requires them.
Set up certificate tracking. See certificate tracking in the first month.

For the full coverage list, see what insurance a new gym owner needs. A Morrow review can compare your contracts with the policies you inherited and request quotes for missing endorsements. Terms depend on the carriers and your contracts.

Keep reading

Frequently asked questions

Do I need a bond to run a gym?

It depends on the state. Some states require health clubs to file a bond or other security before selling memberships, and others do not. New York and Florida do, with exemptions. Check each state where you have a location and ask deal counsel.

Does the seller's health club registration transfer to me?

Often not. Florida's registration cannot be transferred, and New York's security instrument must be replaced after a change in ownership. Ask the state agency what a new owner must file.

Who asks a gym for a certificate of insurance?

Mostly your landlord, lender, franchisor and equipment lessors, and sometimes corporate or school clients. Members generally do not. Check the endorsements behind each certificate.

Can a franchisor tell me which insurance to carry?

Yes. Franchisors can require coverage types and levels in the franchise agreement, and the agreement and manual hold the details. Read them before you finalize the program, and ask whether the franchisor receives any compensation from insurance vendors.

Is a membership contract still valid after I buy the gym?

Not necessarily. A contract that does not follow a state's health club law can be void. In New York, for example, article 30 makes noncompliant contracts void (General Business Law section 627). Have counsel review the form and your state's rules, and ask about refund and cancellation duties.

References

Just bought a business? Get your insurance reviewed.

Send Morrow the declarations pages, loss runs and key contracts you inherited. Morrow can review them against the business you bought, flag gaps and request quotes where it makes sense. Any new terms depend on carrier underwriting.

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This article is general information, not legal, tax or financial advice, and not a coverage determination. Coverage depends on the actual policy wording, carrier underwriting, your purchase agreement and your contracts. Ask your attorney and accountant about deal and legal questions.

Contracts, Licenses and Bonds for a Gym or Fitness Studio