Tennessee § 47-18-305 - Requirements for valid agreements.

§ 47-18-305. Requirements for valid agreements.

All health club agreements shall: Be in writing; Be signed by the buyer; Designate the date on which the buyer actually signed the agreement; and Contain in boldface type of at least ten (10) points, in immediate proximity to the space reserved for the signature of the buyer, the following statement: BUYER'S RIGHT TO CANCEL YOU (THE BUYER) MAY CANCEL THIS AGREEMENT BY SENDING NOTICE OF YOUR WISH TO CANCEL TO THE HEALTH CLUB BEFORE MIDNIGHT OF THE THIRD DAY (EXCLUDING SATURDAYS, SUNDAYS, AND LEGAL HOLIDAYS) OR, IF THE AGREEMENT IS SUBJECT TO A FINANCE CHARGE, THE SEVENTH DAY AFTER THE DAY YOU SIGNED THE AGREEMENT. THIS NOTICE MUST BE SENT BY REGISTERED MAIL TO THE FOLLOWING ADDRESS: WITHIN THIRTY (30) DAYS AFTER RECEIPT OF THE NOTICE OF CANCELLATION, THE HEALTH CLUB WILL RETURN ANY PAYMENTS MADE AND ANY NOTE EXECUTED BY YOU IN CONNECTION WITH THE AGREEMENT. Contain in boldface type of at least ten (10) points, the following statement: SHOULD YOU (THE BUYER) CHOOSE TO PAY THIS AGREEMENT IN FULL, BE AWARE THAT YOU ARE PAYING FOR FUTURE SERVICES AND MAY BE RISKING LOSS OF YOUR MONEY IN THE EVENT THIS HEALTH CLUB CEASES TO CONDUCT BUSINESS. Contain in boldface type, the following statements in separated paragraphs: IN ADDITION TO ANY OTHER REMEDIES PROVIDED BY LAW, IF THIS HEALTH CLUB CEASES OPERATION AND FAILS TO OFFER YOU (THE BUYER) AN ALTERNATE LOCATION WITHIN FIFTEEN (15) MILES, WITH NO ADDITIONAL COST TO YOU, THEN NO FURTHER PAYMENTS SHALL BE DUE TO ANYONE, INCLUDING ANY PURCHASER OF ANY NOTE ASSOCIATED WITH OR CONTAINED IN THIS CONTRACT. STATE LAW REQUIRES THAT ANY HEALTH CLUB AGREEMENT THAT IS NOT CANCELLABLE ON THIRTY (30) DAYS' NOTICE OR LESS BE PAYABLE ONLY IN THE FOLLOWING MANNER, AND ANY HEALTH CLUB THAT ENTERS INTO HEALTH CLUB AGREEMENTS SHALL OFFER BOTH PAYMENT OPTIONS AT THE SAME PRICE, EXCLUDING INTEREST OR FINANCE CHARGES OR OTHER EQUIVALENT CHARGES THAT SHALL NOT EXCEED EIGHTEEN PERCENT (18%) OF THE TOTAL CONTRACT PRICE: Full payment within ninety (90) days after entering into the health club agreement; or Equal monthly installments with any down payment (unless exempt as provided by law) limited to thirty percent (30%) of the total cost of the agreement. Prepayment is allowed at any time with full refund of unearned finance charges. PLEASE READ THIS CONTRACT CAREFULLY. THIS CONTRACT MAY CONTAIN PAYMENTS INCLUDING, BUT NOT LIMITED TO, ENROLLMENT FEES, ANNUAL FEES, MEMBERSHIP FEES, AND OTHER DIRECT PAYMENTS TO THE HEALTH CLUB, INCLUDING FULL PAYMENT FOR THE HEALTH CLUB AGREEMENT OR MONTHLY INSTALLMENT PAYMENTS WITH ANY DOWN PAYMENT (UNLESS EXEMPT AS PROVIDED BY LAW) LIMITED TO THIRTY PERCENT (30%) OF THE TOTAL COST OF THE AGREEMENT, AND, IN THE CASE OF INSTALLMENT PAYMENTS THAT ARE NOT MADE BY ELECTRONIC FUND TRANSFER OR CASH, AN ADMINISTRATIVE CHARGE, NOT TO EXCEED FIVE DOLLARS ($5.00) FOR EACH BILLING PERIOD. ALL SUCH PAYMENTS MUST BE DISCLOSED IN THE CONTRACT. THERE ARE NO AUTOMATIC OR LIFETIME RENEWALS OF THE TERM INCIDENT TO THE TERM OF THIS CONTRACT. IF THE HEALTH CLUB PROVIDES FOR A RENEWAL OPTION, THEN, UNLESS SUCH RENEWAL TERM IS CANCELLABLE ON THIRTY (30) DAYS' NOTICE OR LESS, SUCH OPTION MUST BE AFFIRMATIVELY AGREED TO IN WRITING BY THE BUYER AT THE BEGINNING OF THE RENEWAL PERIOD. IF THE HEALTH CLUB FACILITY IS LESS THAN OR EQUAL TO TEN THOUSAND (10,000) SQUARE FEET (GROSS) OF BUILDING SPACE, THEN THE ANNUAL COST OF SUCH RENEWAL SHALL NOT BE LESS THAN THIRTY PERCENT (30%) OF THE ANNUALIZED COST OF THE BASE MEMBERSHIP CONTRACT OR SEVENTY-FIVE DOLLARS ($75), WHICHEVER IS GREATER. HOWEVER, IF THE HEALTH CLUB FACILITY IS GREATER THAN TEN THOUSAND (10,000) SQUARE FEET (GROSS) OF BUILDING SPACE, THEN THE ANNUAL COST OF SUCH RENEWAL SHALL NOT BE LESS THAN THIRTY PERCENT (30%) OF THE ANNUALIZED COST OF THE BASE MEMBERSHIP CONTRACT OR ONE HUNDRED TWENTY-FIVE DOLLARS ($125), WHICHEVER IS GREATER. PAYMENT OF ANY RENEWAL SHALL BE MADE AS REQUIRED BY TENNESSEE CODE ANNOTATED, SECTION 47-18-305(a)(5)(B)(ii). A CONTRACT OR AGREEMENT MAY HAVE A CONTINUING PROVISION OR STIPULATION THAT PROVIDES FOR A MONTH-TO-MONTH CONTINUATION OF THE INITIAL TERM OF THE AGREEMENT, PROVIDED THE BUYER HAS THE RIGHT TO CANCEL THE CONTINUING PORTION OF THE AGREEMENT AFTER FULFILLING THE ORIGINAL TERM OF THE AGREEMENT BY TENDERING THIRTY (30) DAYS' WRITTEN NOTICE OF SUCH INTENT TO THE OPERATOR BY REGISTERED MAIL. IF SUCH CONTRACTUAL OBLIGATION HAS A CONTINUING PROVISION OR STIPULATION AFTER A REQUIRED INITIAL TERM OF MORE THAN TWO (2) MONTHS, NOTIFICATION MUST BE SENT BY THE HEALTH CLUB OPERATOR TO CONFIRM THAT THE ORIGINAL OBLIGATION WAS FULFILLED AND TO REAFFIRM THE MONTH-TO-MONTH OR CONTINUING PROVISION OR STIPULATION. SUCH NOTIFICATION SHALL ALSO INCLUDE NOTICE OF THE BUYER'S RIGHT TO CANCEL THE CONTINUING MONTH-TO-MONTH OBLIGATION UPON THIRTY (30) DAYS' WRITTEN NOTICE SENT BY THE BUYER TO THE OPERATOR BY REGISTERED MAIL. ANY RENEWAL RIGHT GRANTED UNDER THIS CONTRACT SHALL EXPIRE ON THE FINAL DAY OF THE AGREEMENT. HOWEVER, THE BUYER SHALL HAVE A THIRTY (30) DAY GRACE PERIOD FROM THE DATE OF THE EXPIRATION OF THE RENEWAL RIGHT IN WHICH TO EXERCISE ANY RENEWAL RIGHT GRANTED TO THE BUYER UNDER THIS CONTRACT. THE OPERATOR SHALL HAVE THE RIGHT TO CHARGE A LATE PENALTY OF UP TO TWENTY-FIVE DOLLARS ($25) IF THE RENEWAL RIGHTS ARE NOT EXERCISED ON OR BEFORE THE EXPIRATION DATE AS STIPULATED IN THE AGREEMENT OR ANY FUTURE RENEWAL PERIODS. A health club shall not enter into or offer to enter into a health club agreement unless the health club facility is fully operational and available for use by prospective buyers. Subdivision (b)(1)(A) shall not apply to a health club that discloses to the prospective buyer in writing on a form containing only the disclosure of prospective purchase that the health club agreement the prospective buyer is entering into is for the right to use a health club facility that is not yet operational and available for use. If the health club facility for which a prospective buyer entered into a health club agreement pursuant to subdivision (b)(1)(A) is not operational and available for use within thirty (30) days of entering into the health club agreement, then the prospective buyer shall have the right to cancel the health club agreement and receive all money paid to the health club under that health club agreement by providing the health club written notice of such cancellation. The right of cancellation shall expire on the date the health club facility is fully operational. The disclosure shall contain notice of the right of cancellation, be dated and signed by the prospective buyer, and made available to prospective buyers. It is unlawful for a health club to offer any cash or discounted pre-payment option that exceeds a reduction of the cash value of the highest stated price for any similar period or service-type of agreement: By an excess of ten percent (10%) for any term less than two (2) years duration; By an excess of fourteen percent (14%) for any term of two (2) years duration, but less than three (3) years duration; or By an excess of eighteen percent (18%) for any term of three (3) years duration. It shall be unlawful for a health club to offer free or no cost periods of enrollment in addition to the initial paid term of the agreement in order to circumvent the discounting provision of subsection (c). [Deleted by 2016 amendment.] Acts 1986, ch. 894, § 3; 1989, ch. 460, §§ 9-11; 1990, ch. 832, §§ 1, 2; 1996, ch. 929, §§ 4-8; 2008, ch. 771, § 1; 2008, ch. 926, § 2; 2015, ch. 339, §§ 12, 13; 2016, ch. 858, §§ 5, 6; 2020, ch. 753, § 1. Compiler's Notes. For codification of Acts 1989, ch. 460, see the Session Law Disposition Tables in Volume 13. Acts 2020, ch. 753, § 2 provided that the act, which amended this section, applies to health club agreements entered into, renewed, or amended on or after June 22, 2020. Amendments. The 2015 amendment, in (b), substituted “commissioner” for “division” throughout; designated the first three sentences as (1) and, in (1), substituted “in this part” for “herein”; designated the former fourth sentence as (2)(A) and in (2)(A), substituted “those health clubs” for “such health clubs”; added (2)(B); and designated the former last sentence of (b) as (C) and, in (C), substituted “operator shall” for “operator must”; in (e), substituted “commissioner” for “division” throughout, deleted “however” following “provided” in (1), and substituted “state of Tennessee” for “division” in (1)(C). The 2016 amendment rewrote (b), which read: “(1) A health club shall not enter into or offer to enter into a health club agreement unless the health club is fully operational and available to use by prospective buyers. The commissioner shall, upon application by a health club operator, certify that a health club facility is fully operational if all of the promised equipment and services are available for use by prospective buyers. No payment or promise to pay by a prospective buyer may be accepted by any health club operator unless and until the health club facility has been certified by the commissioner to be fully operational as described in this part.“(2)(A) This subsection (b) shall not apply to any health club that has maintained a satisfactory registration with the commissioner for five (5) consecutive years; provided, that those health clubs notify the commissioner by certified mail of their intent to enter into agreements for a location not fully operational as otherwise required by this subsection (b).“(B) A health club's maintenance of satisfactory registration with the consumer affairs division of the department of commerce and insurance prior to July 1, 2015, shall satisfy the requirement for maintenance of satisfactory registration with the commissioner in subdivision (b)(2)(A), if:“(i) The health club maintained satisfactory registration with the division for five (5) consecutive years prior to July 1, 2015; or“(ii) The health club maintained satisfactory registration with the division for a period of time that was less than five (5) years immediately preceding a period of time that the health club maintained satisfactory registration with the commissioner, which, when both periods of time are added together, total five (5) consecutive years.“(C) In order to be eligible to use this exemption, an operator shall use the same identification as described in any existing facility registration information as well as use the same federal and state tax accounts for payments of any related taxes due to this extension of operations.”; and deleted (e), which read: “(e)(1) Notwithstanding this part or any rules promulgated pursuant to this part to the contrary, a health club may enter into or offer to enter into a health club agreement with, or accept payment or a promise of payment from, a prospective buyer prior to certification by the commissioner of its facility as fully operational as set forth in subsection (b); provided, that the health club has:“(A) Acquired a property right or interest in this state with respect to the facility;“(B) Filed a registration application with the commissioner as required by § 47-18-309 ; and“(C) Purchased from a surety company authorized to do business in this state a surety bond in favor of the state of Tennessee in the amount of twenty-five thousand dollars ($25,000).“(2)(A) If the commissioner determines, based on the financial statement required by § 47-18-309(a)(3) , that the financial condition of the health club is insufficient to protect prospective buyers, then the commissioner may require that the health club post a surety bond in an amount greater than twenty-five thousand dollars ($25,000), but not to exceed two hundred thousand dollars ($200,000). The health club shall file a copy of the bond with the commissioner.“(B) A buyer who suffers loss of payments made to a health club prior to certification due to the health club's failure to open the facility may recover the amount of the payments from the surety; provided, that the liability of the surety may not exceed the aggregate amount of the bond regardless of the number or amount of claims filed with the surety.“(C) Upon certification by the commissioner that the health club is fully operational, the health club may cancel the surety bond upon thirty (30) days written notice of cancellation from the surety to the commissioner.”. The 2020 amendment substituted “IF THIS HEALTH” for “IN THE EVENT THIS HEALTH” near the beginning of (a)(5)(B)(i); in (a)(5)(B)(ii), substituted “ANY HEALTH CLUB AGREEMENT THAT IS NOT CANCELLABLE ON THIRTY (30) DAYS' NOTICE OR LESS” for “HEALTH CLUB” near the beginning, substituted “THAT ENTERS” for “WHICH ENTERS” near the middle, and substituted “THAT SHALL” for “WHICH SHALL” near the end; rewrote (a)(5)(B)(iii), which read: “THIS CONTRACT DOES NOT CONTAIN ANY PAYMENTS OF ANY KIND, INCLUDING, BUT NOT LIMITED TO, ENROLLMENT FEES, MEMBERSHIP FEES, OR ANY OTHER DIRECT PAYMENTS TO THE HEALTH CLUB, OTHER THAN FULL PAYMENT FOR THE HEALTH CLUB AGREEMENT OR MONTHLY INSTALLMENT PAYMENTS WITH ANY DOWN PAYMENT (UNLESS EXEMPT AS PROVIDED BY LAW) LIMITED TO THIRTY PERCENT (30%) OF THE TOTAL COST OF THE AGREEMENT, AND, IN THE CASE OF INSTALLMENT PAYMENTS WHICH ARE NOT MADE BY ELECTRONIC FUND TRANSFER OR CASH, AN ADMINISTRATIVE CHARGE, NOT TO EXCEED FIVE DOLLARS ($5.00) FOR EACH BILLING PERIOD.”; inserted “THEN, UNLESS SUCH RENEWAL TERM IS CANCELLABLE ON THIRTY (30) DAYS' NOTICE OR LESS,” in (a)(5)(B)(iv); rewrote (a)(5)(B)(v), which read: “ A CONTRACT OR AGREEMENT MAY HAVE A CONTINUING PROVISION OR STIPULATION THAT PROVIDES FOR A MONTH TO MONTH CONTINUATION OF THE INITIAL TERM OF THE AGREEMENT PROVIDED THE BUYER HAS THE RIGHT TO CANCEL THE CONTINUING PORTION OF THE AGREEMENT AFTER FULFILLING THE ORIGINAL TERM OF THE AGREEMENT BY TENDERING THIRTY (30) DAYS WRITTEN NOTICE OF SUCH INTENT TO THE OPERATOR BY REGISTERED MAIL. IF SUCH CONTRACTUAL OBLIGATION HAS A CONTINUING PROVISION OR STIPULATION, NOTIFICATION MUST BE SENT BY THE HEALTH CLUB OPERATOR TO CONFIRM THAT THE ORIGINAL OBLIGATION WAS FULFILLED AND TO REAFFIRM THE MONTH TO MONTH OR CONTINUING PROVISION OR STIPULATION. SUCH NOTIFICATION SHALL ALSO INCLUDE NOTICE OF THE BUYER'S RIGHT TO CANCEL THE CONTINUING MONTH-TO-MONTH OBLIGATION UPON THIRTY (30) DAYS' WRITTEN NOTICE SENT BY THE BUYER TO THE OPERATOR BY REGISTERED MAIL .”; and substituted “TWENTY-FIVE DOLLARS ($25)” for “$25” near the end of the last sentence of (a)(5)(B)(vi). Effective Dates. Acts 2015, ch. 339, § 31. July 1, 2015; May 4, 2015, for the purpose of rulemaking. Acts 2016, ch. 858, § 19. July 1, 2016. Acts 2020, ch. 753, § 2. June 22, 2020. Cross-References. Certified mail instead of registered mail, § 1-3-111 . Cited: State v. Southern Fitness & Health, Inc., 743 S.W.2d 160, 1987 Tenn. LEXIS 1083 (Tenn. 1987); Westside Health & Racquet Club v. Jefferson Fin. Servs., Inc., 19 S.W.3d 796, 1999 Tenn. App. LEXIS 812 (Tenn. Ct. App. 1999). Collateral References. Construction and applicability of state statutes governing health club membership contracts or fees. 48 A.L.R.6th 223.