Unhappy Franchisee received this email from a former Liberty Fitness franchise owner. He claims that a year after closing their failed fitness club, the new franchisor owner, Diversified Health & Fitness, decided to hit them up for future royalties for the remainder of the 10 year agreement.
Talk about adding insult to injury. Here’s the email:
About 4 years ago, my wife wanted to open her first business and enjoyed working out in a ladies-only gym. So after a little searching around options, she bought and opened a Liberty Fitness franchise . At it’s peak there were about 61 franchisees and it seemed to be growing (there were about 50 when my wife opened).
After spending over $250k in purchase, buildout, and continuous / mounting monthly losses, she notified the current franchise owner that she would close her club at the end of 2007 (about 4 months notice) – she was open for total of 3 years. In October 2007, Diversified bought the franchise and my wife notified them that we were closing, and had notified the prior owners of this too. We actually closed [in] 2008, with all monthly fees to Diversified fully paid up (minimum monthly fees for franchise including marketing etc which was never done).
In January of 2009, we get a surprise letter from an attorney for Diversified that they were trying to collect 7 years FUTURE franchise fees; about $250k. They said they interpreted the franchise agreement as REQUIRING us to operate for 10 years. Several Liberty Fitness franchisees that closed are getting similar letters; there are only 6 open and rumor has it three are about to close. Several clubs closed before Diversified, and this was never an issue – they just closed, done deal.
Even in the short period we worked with Diversified (about 3 months) they were aggressively trying to get us to pay a franchise exit fee that was NOT written in the contract for Liberty (maybe it was there for Shapexpress or for other franchises and they got confused; we never did understand it). But they went silent for a year, and now this shakedown.
Is this common in this industry, or even just this segment (women’s health clubs), or is it just Diversified? I’m surprised with this development and the almost total collapse of Liberty Fitness that there are no BLOG reference points ala the Shapexpress blog.
You know times are hard when companies are looking to defunct businesses for revenue.
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