When opening a gym or health studio, whether you are a large health club providing a broad range of offerings or a small, specialized studio, one of the first decisions that you’ll need to make is how you want to contract with your members. You may contract with customers on a simple month-to-month basis, allowing your customers to terminate their membership at any time and for any reason, or you may seek to bind your members to a membership term of a year or even more, and perhaps even require an up-front “initiation fee,” with limited options to terminate the membership before the expiration of the term. Either way, to ensure smooth operations and relations with your customers, a clear, concise membership agreement is a must. Below we look at the scenario in which a California operator seeks to bind customers to a membership term.
Any gym or health studio operating in California seeking to sell memberships to the public must comply with the California Health Studio Services Contract Law, which can be found at California Civil Code §§ 1812.80 through 1812.97. This California law has been around for a while, as evidenced by its reference in the statute as applicable to “contracts for dance studio lessons and other services,” harkening back to the days when Fred Astaire and Ginger Rogers had many scrambling for proficiency on the dance floor. (Which opens the door to one of my favorite quotes when, in response to everyone swooning over Astaire’s dancing skills, Ginger Rogers noted that she did everything that Astaire did, but she did it backwards and in high heels, but I digress.)
This California law contains quite detailed guidance concerning all aspects of a gym membership agreement, and an operator’s failure to comply with the terms of this law can result in rendering the membership contract void and unenforceable and, under certain circumstances, allows for recovery of three times the amount of any resulting damage, plus attorney’s fees. As such, an understanding of and compliance with this law is crucial to anyone seeking to sell gym memberships in California. Some of the key dictates of this law are discussed below.
First, who must comply with this law? As defined in the law, a “contract for health studio services” means a contract for instruction, training or assistance in physical culture, body building, exercising, reducing, figure development, or any other such physical skill, or for the use by an individual patron of the facilities of a health studio, gymnasium or other facility used for any of the above purposes, or for membership in any group, club, association or organization formed for any of the above purposes . . . .”. This is quite broad, covering large health clubs offering a broad range of activities, as well as small, focused providers like yoga, cycling, barre, cross-training, HIIT, and martial arts studios, to name a few.
If you fall under the above definition as a “health studio services” provider and seek to contractually bind your members to a term (as opposed to a simple month-to-month contract, terminable at any time), your contract must be in writing and may not require payments, including initiation fees, of more than $4,400.00 over the term of the contract, exclusive of interest or finance charges. The contract may not be for longer than three (3) years and may not require payments beyond the stated contract term. The contract must clearly state the contract term in at least 14-point type just above the place for the member’s signature.
Further, the contract must include the name and address of the health club, the date of contract execution, and the member must be provided with a copy of that contract upon execution. The copy of the signed contract may be physically provided to the customer upon execution or may be delivered by email to the customer-provided email address. We recommend emailing that contract copy because that will provide clear evidence that the executed contract was provided on a specific date and time.
Second, can you begin selling memberships to your California club before it is even open? Yes, you can, so long as you strictly comply with the dictates of the California Health Studio Services Contract Law. If the club is not yet open when the contract is executed, the contract must clearly state when the gym will be open and available for use, which date must be within six (6) months of the date of execution of the contract. If the club is not open and available for use within that time period, the member can cancel the contract and receive a refund of any money paid. Even if the club does open after that six-month period, the member will have ten (10) days from the date of opening to cancel.
Speaking of a right to cancel, a legally compliant health club membership contract must explicitly provide a five-day right to cancel. Commonly known as a “cooling off period,” California Civil Code § 1812.85 is quite specific about the language necessary in this regard, which language should be included in your membership agreement.
Depending on the amount of money to be paid by the customer for the term of the agreement, some customers may have additional time to cancel their health club contract. Thus, if the total payments required are between $1,500 and $2,000, the customer will have 20 days to cancel; if between $2,001 and $2,500, 30 days; and if the total amount to be paid under the contract is more than $2,501 the cancellation right extends to 45 days after execution. These dollar amount thresholds are subject to updating and change by the legislature, so please check § 1812.85 to confirm the dollar amounts and related cooling-off periods applicable at the time you are contracting with members.
Further, the law requires a clear description of the services, facilities, and hours of operation, which requirement can be complied with by providing the URL where this information can be found on the club’s website.
There are scenarios cited in the law that allows a member to terminate their membership agreement early. Specifically, the member is allowed to terminate the agreement if the member becomes disabled, dies, or moves more than 25 miles from the facility. If canceling on the basis of disability, the disability must be one that affects the use of the club’s facilities, and the club can require physician verification. If cancellation is due to death, a representative may cancel and, if requested, the club must refund the prorated portion of any prepaid amount. If canceling due to a move of 25 miles or more from the health studio, the club may charge a cancellation fee of not more than $100, or $50 if more than half of the contract life has expired. Again, these amounts are occasionally revised, so always check the statute.
A California health club of any size that wishes to enter into membership agreements with customers for a term must comply with the dictates of the California Health Studio Services Contract Law. Failure to do so can render your member agreements void and can even lead to liability for significant damages and attorney’s fees.
The above is an overview of the most significant aspects of that law. If you are in the process of opening a gym or seeking help complying with this law, please do not hesitate to contact us at Crown®, LLP. Likewise, if you do not seek to bind your customers to a term membership and would rather operate on a month-to-month basis, we can help you in preparing a clear concise agreement with your customers, which will allow you to spend less time explaining your contract terms and more time doing fitness training.