What happens to any excess insurance recovery retained by the Franchisor's Affiliate after the Aira Fitness franchisee pays the liquidated damages?
Aira_Fitness Franchise · 2025 FDDAnswer from 2025 FDD Document
Equipment (or any part thereof) and irrespective of payment from any insurances coverage maintained by Franchisee, but applying full credit therefor, Franchisee shall at the option of Franchisor's Affiliate, (a) place the Equipment in good repair, condition and working order; or (b) replace the Equipment (or any part thereof) with like equipment in good repair, condition and working order and transfer clear title to such replacement equipment to Franchisor's Affiliate, whereupon such replacement equipment shall be deemed the Equipment for all purposes; or (c) pay to Franchisor's Affiliate, not as a penalty, but herein liquidated for all purposes, an amount equal to the sum of (A) any accrued and unpaid rent as of the date the loss, theft, damage or destruction occurred ("Date of Loss") plus interest at the rate of eighteen percent (18%) per annum or the highest rate allowed by law; (B) the present value of all future rentals reserved in the Lease and contracted to be paid over the unexpired term of the Lease discounted at a rate equal to the discount rate of the Federal Reserve Bank of Chicago as of the Date of Loss; (C) the present value of the agreed upon or estimated residual value of the Equipment as of the expiration of this Lease or any renewal thereof discounted at a rate equal to the discount rate of the Federal Reserve Bank of Chicago as of the Date of Loss; and (D) any other amount otherwise then due and owing under the Lease or which otherwise will become due and owing irrespective of the fact that the Equipment has been damaged, destroyed, lost or stolen including any additional taxes or other charges that may otherwise arise by reason of the damage, destruction, loss or theft of the Equipment. Upon Franchisor's Affiliate's receipt of such payment, Franchisee shall be entitled to the proceeds of any recovery in respect of any such item of Equipment from insurance or otherwise to the extent that any excess shall be retained by Franchisor's Affiliate.
Source: Item 23 — **RECEIPTS (FDD pages 59–254)
What This Means (2025 FDD)
According to the 2025 Aira Fitness Franchise Disclosure Document, if the franchisee's equipment is lost, stolen, damaged, or destroyed, the franchisee is responsible for either repairing or replacing the equipment, or paying the Franchisor's Affiliate a liquidated amount. This amount includes accrued unpaid rent plus interest (at 18% per annum or the highest rate allowed by law), the present value of future rentals discounted at the Federal Reserve Bank of Chicago's discount rate, the present value of the equipment's residual value (also discounted at the same rate), and any other amounts owed under the lease.
Upon the Franchisor's Affiliate receiving this payment from the Aira Fitness franchisee, the franchisee is then entitled to the proceeds from any insurance recovery related to the equipment. However, this entitlement is limited to the extent that any excess from the insurance recovery is retained by the Franchisor's Affiliate.
In practical terms, this means that while the Aira Fitness franchisee is responsible for covering the costs associated with the loss or damage to the equipment, they are also entitled to any insurance proceeds that help offset those costs. However, Aira Fitness's Affiliate retains any excess insurance money, which could potentially create a situation where the Affiliate profits from the loss beyond the actual value of the damages. Prospective franchisees should carefully consider this clause and seek clarification on how the 'excess' is calculated and used by the Franchisor's Affiliate.