What happens to insurance proceeds if the Aira Fitness franchisee makes a payment to the Franchisor's Affiliate for lost equipment?
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 Aira Fitness's 2025 Franchise Disclosure Document, if a franchisee's equipment is lost, stolen, damaged, or destroyed, and the franchisee makes a payment to the Franchisor's Affiliate to cover the loss, the franchisee is entitled to the proceeds from any insurance recovery related to that equipment. However, the Franchisor's Affiliate retains any excess amount from the insurance proceeds.
This means that while the franchisee bears the initial responsibility of covering the costs associated with the lost or damaged equipment, they are also entitled to the insurance money received for that loss, up to the amount they paid to the Franchisor's Affiliate. This arrangement ensures that the franchisee is not doubly penalized by both paying for the loss and forfeiting the insurance recovery.
However, it is important to note that the Franchisor's Affiliate retains any insurance proceeds exceeding the amount the franchisee paid. This could occur if the insurance payout is more than the sum of unpaid rent, the present value of future rentals, the residual value of the equipment, and any other outstanding amounts. Franchisees should be aware of this provision and understand that they will not receive any surplus from the insurance claim beyond what they paid to the Franchisor's Affiliate.