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Maryland Health Club Bond

July 6, 2022

Maryland health club operators may need a Maryland Health Club Bond to operate in the State. Learn more about these surety bonds, what they guarantee, what they cost and how to easily obtain one. 

 

What Does a Maryland Health Club Bond Guarantee?

 

A Maryland Health Club Bond protects gym and health club members and the State of Maryland against damages and administrative expenses resulting from the health club’s closing.The bond provides protection to members who prepay membership dues. 

 

What is the Amount of a Maryland Health Club Bond?

 

The amount of a Maryland Health Club Bond depends on if the health club is a new or existing club.

 

Two boxes showing the required bond amounts for a Maryland Health Club Bond. The background is people exercising in a gym.

 

New Health Club Bond Amount

 

A new Maryland Health Club that collects membership fees before opening needs to post a Maryland Health Club Bond in the amount of $50,000. The Maryland Health Care Bond mount must also be increased as sales increase. 

 

The health club is required to submit a monthly affidavit, a quarterly CPA report and a quarterly Schedule of Outstanding Liabilities must be filed with the Division until the club opens. For these health clubs, the Health Club Bond must always meet or exceed the amount of dues collected and there is no maximum bond amount. New clubs must have a bond for each location.

 

Existing Health Club Bond Amount

 

Existing Maryland Health Clubs must post a bond that covers all outstanding member liabilities. The value of these outstanding member liabilities is calculated by the difference between the amount of money each consumer has paid for services and the value of services the club has actually provided to the consumer.

 

For example, if the health club has collected 12 months of dues at the beginning of January, by June the club has outstanding member liabilities of 6 months of membership dues. 

 

Each year the health club must file with the State a Schedule of Outstanding Liabilities showing the health club’s outstanding membership liabilities. This must be Reviewed by a Certified Public Accountant. This schedule determines the amount of the Maryland Health Club Bond required for existing Clubs.Existing clubs must also have a bond for each location.

 

Maximum Bond Amount

 

Health clubs can elect to post a Maryland Health Club Bond for the maximum amount. This amount is $200,000 per location. If the club makes this election, they are exempt from filing the annual Schedule of Outstanding Liabilities by a CPA.

 

Who Must Provide a Maryland Health Club Bond?

 

Maryland Health Club Bonds apply to a variety of organizations. According to Maryland Code Title 14, Subtitle 12B, 

 

"Health club services" includes health spa, figure salon, weight reduction center, self defense school, or other physical culture service enterprises offering facilities for the preservation, maintenance, encouragement, or development of physical fitness or physical well-being.”

 

All of these businesses must register with The Health Club Unit, Consumer Protection Division, Office of the Attorney General of Maryland. In addition, if these businesses meet any of these 3 conditions, they must provide a Maryland Health Club Bond:

 

  • Collects or accepts more than three (3) months of payment in advance of providing services from any member, including annual fees; or
  • Collects or charges an initiation fee or any other up-front fee more than $200 to any member; or,
  • Has not yet opened a facility, but collects any money in advance for services to be provided at a planned facility or facility under construction (pre-sales).

 

What Organizations are Excluded from Needing a Maryland Health Club Bond?

 

The following organizations are excluded under Maryland Code and do not need to obtain a bond: 

 

  • Any nonprofit public or private school, college, or university
  • The State, or any of its political subdivisions
  • Any nonprofit religious, ethnic, community, or service organization. 

 

Other Exemptions

 

Health Clubs may apply for an exemption from providing a Maryland Health Club Bond by filing Form HS-R4. This exemption only applies to Health Clubs that do not: 

 

  • Collects or accepts more than three (3) months of payment in advance of providing services from any member, including annual fees; or
  • Collects or charges an initiation fee or any other up-front fee more than $200 to any member; or,
  • Has not yet opened a facility, but collects any money in advance for services to be provided at a planned facility or facility under construction (pre-sales).

 

Parties to a Maryland Health Club Bond

The Principal on the bond is the health club. This is the party responsible for making sure that buyers get the value of their prepaid membership dues. The Obligee is The Consumer Protection Division of The State of Maryland. This is the party benefiting from the bond’s guarantee on behalf of the members. The Surety is the third party bond company that is guaranteeing that the health club’s membership liabilities are paid or earned.

 

This chart shows the relationship between the Maryland Health Club, The Surety and the Maryland Consumer Protection Division. The background is a bunch of tiny barbells.

 

Alternatives to a Maryland Health Club Bond

 

In lieu of a Maryland Health Club Bond, the State of Maryland will accept an Irrevocable Letter of Credit (ILOC) or cash. The required amount is still the same for both instruments as the requirement for the Surety Bond. Health Clubs may want to consider that these alternatives tie up resources that could be used in the business operations.

 

Surety Bonds are generally considered a type of unsecured credit because bond companies do not normally file UCCs and Liens unless they receive a claim. Therefore, they do not tie up a health club's borrowing ability or cash that could be used for operations or growth. You can read about surety bonds versus ILOCs here  and surety bond versus cash here. A sample of the ILOC form required by the state can be found here

 

What do Maryland Health Club Bonds Cost?

 

Generally Maryland Health Club Bonds Cost 1% of the required bond amount each year. Health Clubs with very strong financial statements may qualify for better rates. Additionally, some surety bond companies provide discounts to Health Clubs who purchase multiple years at once. These discounts can be 20% - 30% in some cases. It is important to keep in mind that the bond premium will be due each year and can change based on the required bond amount. 

 

Blue box that shows the cost of a Maryland Health Club Bond. In the background is a black picture of a barbell on the ground.

 

How to Obtain a Maryland Health Club Bond

 

Maryland Health Club Bonds are easy to obtain for most clubs. A simple application and credit check is all that is needed for most club owners. 

 

Green button to instantly purchase a Maryland Health Club Bond

 

Can I Obtain a Maryland Health Club Bond with Bad Credit?

 

In general, yes. Almost anyone can qualify for a Maryland Health Club Bond. The surety bond company will likely ask for some additional information and the process may take longer but these bonds are usually obtainable, even with less than perfect credit.

 

Canceling a Maryland Health Club Bond

 

A Maryland Health Club Bond can be canceled by giving at least 45 days written notice to the Consumer Protection Division. The notice must be delivered by Certified Mail. The Surety Bond Company is still liable for any claims that took place during the period the bond was active and the 45 day waiting period.

 

If a Maryland Health Club Bond is canceled, the health club will need to file a replacement bond with the Division in order to continue operations.

 

A claim Against a Maryland Health Club Bond

 

Any person who buys health club services and suffers a loss because of the health bankruptcy or closing of a facility, can make a claim against the Maryland Health Club Bond. The Surety Bond company will either pay the claim or the buyer may bring action against the Surety Bond Company.

The Division may also file a claim on behalf of a buyer or buyers and the Surety Bond Company will pay the Division, who will be responsible for distributing payment to buyers.

Claim Criteria

  • A Buyer must file a claim within 1 year of the Health Clubs Bankruptcy or facility closing.
  • A claim cannot be made when the buyer’s membership agreement provides for a transfer of membership to a comparable facility in close proximity to the closed facility.

 

Indemnity Required

 

It is important to understand that if a claim is filed against a Maryland Health Club Bond and paid by the surety bond company, the surety can seek reimbursement for the claim under the indemnity agreement. It is common for the Health Club, its owners and their spouses to be indemnitors to the surety bond company. You can read more about indemnity here

 

Maryland Health Club Bonds are required for health clubs operating in the State of Maryland. These surety bonds are inexpensive and can be purchased online in minutes by most health clubs. Maryland Health Clubs may need additional surety bonds and can visit the Maryland Surety Bond Page to purchase many of these bonds instantly. For more information, contact the surety bond experts at Axcess Surety anytime. Health Clubs may also visit our Surety Bond FAQ and Learn Pages for more information on Surety Bonds. 

 

Below is a bond form for a Maryland Health Club Bond:

Front page of a Maryland Health Club Bond Form

 

Other Frequently Asked Questions

 

How Large of a Bond Must be Posted for a Maryland Gym?

An amount equal to or exceeding the gym's prepaid membership liability up to a maximum of $200,000 per location.

My gym closed in Maryland. How do I get my membership dues back?

Contact the Maryland Attorney General Consumer Protection Division.

 

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