Virginia Code 59.1-306: Bond or letter of credit required; exception
A. Every health club, before it enters into a health club contract and accepts any moneys in excess of the prorated monthly fee for the month when the contract is initially executed plus one month’s fees or accepts any initiation fee in excess of $125, shall file and maintain with the Commissioner, in form and substance satisfactory to him, a bond with corporate surety, from a company authorized to transact business in the Commonwealth or a letter of credit from a bank insured by the Federal Deposit Insurance Corporation in the amounts indicated below:
| a | Number of | Amount of bond |
| b | applicable contracts | or letter of credit |
| c | 0 to 250 | $10,000 |
| d | 251 to 500 | $20,000 |
| e | 501 to 750 | $30,000 |
| f | 751 to 1000 | $40,000 |
| g | 1001 to 1250 | $50,000 |
| h | 1251 to 1500 | $60,000 |
| i | 1501 to 1750 | $70,000 |
| j | 1751 to 2000 | $80,000 |
| k | 2001 or more | $100,000 |
Terms Used In Virginia Code 59.1-306
- Commissioner: means the Commissioner of Agriculture and Consumer Services, or a member of his staff to whom he may delegate his duties under this chapter. See Virginia Code 59.1-296
- Contract: A legal written agreement that becomes binding when signed.
- Corporation: A legal entity owned by the holders of shares of stock that have been issued, and that can own, receive, and transfer property, and carry on business in its own name.
- Facility: means a location where health club services are offered as designated in a health club contract. See Virginia Code 59.1-296
- Health club: means any person, firm, corporation, organization, club or association whose primary purpose is to engage in the sale of memberships in a program consisting primarily of physical exercise with exercise machines or devices, or whose primary purpose is to engage in the sale of the right or privilege to use exercise machines or devices. See Virginia Code 59.1-296
- Initiation fee: means a nonrecurring fee charged at or near the beginning of a health club membership, and includes all fees or charges not part of the monthly fee. See Virginia Code 59.1-296
- Month: means a calendar month and "year" means a calendar year. See Virginia Code 1-223
- Monthly fee: means the total consideration, including but not limited to, equipment or locker rental, credit check, finance, medical and dietary evaluation, class and training fees, and all other similar fees or charges and interest, but excluding any initiation fee, to be paid by a buyer, divided by the total number of months of health club service use allowed by the buyer's contract, including months or time periods called "free" or "bonus" months or time periods and such months or time periods that are described in any other terms suggesting that they are provided free of charge, which months or time periods are given or contemplated when the contract is initially executed. See Virginia Code 59.1-296
For purposes of calculating the number of applicable unexpired health club contracts when determining the required amount of bond or letter of credit, health club contracts entered into on or after January 1, 2005, with a term that exceeds 13 months shall be counted as multiple health club contracts, such that the number of applicable contracts counted with respect thereto shall equal the total of the number of full years and any partial year in its term. However, this paragraph shall not apply (i) to health club contracts that are payable only on a monthly basis and for which the initiation fee is no more than $250 or (ii) if the number of the health club’s contracts in effect with a term that exceeds 13 months is less than 10 percent of the total of its health club contracts.
The number of applicable unexpired contracts shall be separately calculated for each facility.
A health club shall file a separate bond or letter of credit with respect to each separate facility, even though the separate facilities are owned or operated by the same health club.
However, no health club shall be required to file with the Commissioner bonds or letters of credit in excess of $300,000. If the $300,000 limit is applicable, then the bonds or letters of credit filed by the health club shall apply to all facilities owned or operated by the same health club.
B. A health club may sell health club contracts of up to 36 months’ duration for a facility for which a health club has not filed a bond or letter of credit so long as the amount of payment actually charged, due or received under the health club contracts each month by the health club or any holder thereunder does not exceed the monthly fee calculated pursuant to the definition thereof in § 59.1-296, with the exception that the payment actually charged may include a maximum initiation fee of $125 for health club contracts of 13 months or more in duration.
1984, c. 738; 1985, c. 585; 1990, cc. 392, 433; 1992, c. 117; 2004, c. 988; 2010, c. 439; 2014, c. 459.