Boutique Fitness Owners Weather the COVID-19 Storm with Crafted Equipment Lease Programs
Gyms and fitness centers throughout the country… from high intensity interval training boxes to boutique spin and barre studios… are pursuing creative ways to keep their businesses profitable despite the current worldwide COVID-19 pandemic. Although social distancing rules and “non-essential business” closures enacted in nearly every jurisdiction have essentially locked down the group fitness industry, many corporate and franchise studio owners are exploring leasing programs designed to allow customers to rent fitness equipment for home use. This equipment can include anything from floor mats and punching bags to stationary bikes. Leasing equipment has proven to pair well with each studio’s online community efforts, as many group fitness studios have turned to capturing instructive classes via live social media streaming to maintain customer loyalty. However, most studio owners are wary to lease out their studio’s prized possessions to the masses...
Although the organization of lease programs have helped studio owners weather the COVID-19 storm, many owners, franchisors and franchisees are wise to consider including certain language in their written lease agreements prior to launching the program.
- Clearly Identify Contact Information for the Lessee and Obtain Credit Card Information Up Front. This seems like a no-brainer, but studio owners do not want to be tasked with tracking down a customer who suddenly forgets that they leased your equipment or skips town with your gear. Be sure to collect credit card information up front in the event you fall victim to lessee fraud.
- Clearly Identify the Leased Equipment. Customers will have a convenient way to challenge the validity of a lease agreement if you have leased so much gear such that it becomes a puzzle to determine who leased what months from now. Make sure each item of leased equipment is labelled with a tracking number and keep a record of each item’s lessee and whereabouts.
- Rent and Lease Term. Although many apartment leases enjoy certain “default rules” due to a jurisdiction’s Landlord & Tenant Act, default rules rarely exist for leases of personal property like gym equipment. Make sure the length of the term is clearly identified, even if the term renews periodically such as once per month. Apply the same thoroughness to lease payments so that a customer has no way to argue that he or she believed lease payments were only required once.
- Restrict User Operation. Studio owners should consider whether the equipment may be used by only the customer, members of the customer’s household, or anyone the customer invites to use the equipment. The more individuals who have access to the equipment, the more exposed you are to potential liability in the event the equipment fails and personal injury occurs. Also, consider restricting where the equipment may be located during the term of the lease. For example, if you don’t want your equipment stored outside or somewhere other than the customer’s home address, make sure your attorney spells that out in the lease. In addition, the last thing you want is for your customer to get creative in using your gear for their own commercial uses (bootleg webcam fitness instruction, anyone?) Make sure your equipment may be used only for the personal enjoyment of your customer and not for commercial gain.
- Delivery and Return of Equipment. Think through who is responsible for delivering and returning the equipment. For traditional weight lifting gear, it may be acceptable for the customer to pick up and return on his or her own. For more complex and technologically advanced gear like modern spin cycles, you may want your own staff to deliver, install and pick up the equipment once the lease expires. Also consider maintaining some level of control over your ability to periodically inspect the equipment in the event you suspect it is being abused in some way.
- Title and Risk of Loss. It should go without saying, but the lease needs to state that title (meaning, the ownership of the property) remains with the studio owner and not the customer. However, the risk of loss due to damage or theft of the equipment should be transferred to the customer, as the owner has no way to control what happens to the property during the term of the lease.
- Insurance. Find out if your insurance policy covers any risk of loss or damage to the equipment, and whether your insurance will actually continue to provide that coverage if you lease the equipment to someone else. If not, your lawyer may be able to help you negotiate this coverage to be included in your policy. Regardless of whether your insurance provider will cover these types of losses, ask your lawyer to consider including language stating that the risk of loss is transferred to the customer despite any insurance coverage you are already paying for. There is no reason why you should be forced to file a claim and risk your annual premium going up if it is really the customer who is responsible for the well-being of your equipment during the lease.
- Indemnification. On occasion, lessees have been successful in suing lessors when equipment becomes faulty and causes personal injury. Indemnification clauses can limit exposure of such liability by having the customer agree to waive this right and to step into the shoes of the owner in the event a third party files an action. Your attorney may have several thoughts as to how to craft the best language suited for your equipment and studio.
- Franchisees – Make Sure You Have Franchisor’s Permission. Although franchise owners are best suited to know what is best for their business, no one wants to be found in default of their franchise agreement with “Corporate.” Be sure to communicate with your franchisor to make sure it is on the same page with you before your lease program starts. Your attorney should be able to assist with these communications and can help negotiate if needed.
The above only represents a handful of issues for studio owners to consider prior to leasing fitness equipment, but your attorney should be able to craft language for your form agreements in a condensed fashion (on two to three pages) in a way that is easy for all of your customers to understand.
Burr & Forman LLP frequently provides counsel to a variety of small businesses, franchise studio owners and corporate fitness industry franchisors with locations operating throughout the country.