Bill Text: CA AB525 | 2015-2016 | Regular Session | Amended

California Assembly Bill 525 (Prior Session Legislation)

NOTE: There are more recent revisions of this legislation. Read Latest Draft
Bill Title: Franchise relations: renewal and termination.

Spectrum: Slight Partisan Bill (Democrat 3-1)

Status: (Passed) 2015-10-11 - Chaptered by Secretary of State - Chapter 776, Statutes of 2015. [AB525 Detail]

Download: California-2015-AB525-Amended.html
BILL NUMBER: AB 525	AMENDED
	BILL TEXT

	AMENDED IN ASSEMBLY  MAY 7, 2015
	AMENDED IN ASSEMBLY  MAY 4, 2015
	AMENDED IN ASSEMBLY  APRIL 6, 2015

INTRODUCED BY   Assembly Members Holden, Atkins,  Dodd,  and
Wilk

                        FEBRUARY 23, 2015

   An act to amend Sections 20020, 20021, and 20036 of, to amend the
heading of Article 6 (commencing with Section 20035) of Chapter 5.5
of Division 8 of, to add Sections 20022, 20028, and 20029 to, and to
repeal and add Section 20035 of, the Business and Professions Code,
relating to franchises.



	LEGISLATIVE COUNSEL'S DIGEST


   AB 525, as amended, Holden. Franchise relations: renewal and
termination.
   The California Franchise Relations Act sets forth certain
requirements related to the termination, nonrenewal, and transfer of
franchises between a franchisor, subfranchisor, and franchisee, as
those terms are defined.
   That act, except as otherwise provided, prohibits a franchisor
from terminating a franchise prior to the expiration of its term,
except for good cause, which includes, but is not limited to, the
failure of the franchisee to comply with any lawful requirement of
the franchise agreement after being given notice and a reasonable
opportunity to cure the failure within 30 days.
   This bill would instead limit good cause to the failure of the
franchisee to  substantially  comply with  any
lawful requirement of  the franchise agreement after being
given notice at least 60 days in advance and a reasonable opportunity
to cure the failure no less than 60 days from the date of the notice
of noncompliance.
   This bill would make it unlawful for a franchise agreement to
prevent a franchisee from selling or transferring a franchise or a
part of an interest of a franchise to another person, provided that
the person is qualified under the franchisor's then-existing and
reasonable standards for approval of new franchisees. The bill would
prohibit a sale, transfer, or assignment or a franchise without the
franchisor's written consent but would prohibit that consent from
being withheld unless the buyer, transferee, or assignor does not
meet standards for new franchisees.
   This bill would provide that a franchise agreement require the
franchisee, prior to the sale, assignment, or transfer of all or
substantially all of the assets of the franchise business, or a
controlling interest in the franchise business, to another person, to
notify the franchisor of the franchisee's decision to sell,
transfer, or assign the franchise, and would require the notice to be
in writing and include specified information. The bill would provide
that the franchise agreement require the franchisor, within a
specified period, to notify the franchisee of the approval or
disapproval of the sale, assignment, or transfer of the franchise,
and would require the notice to be in writing and be personally
served on the franchisee or sent by certified mail, return receipt
requested. The bill would deem a proposed sale, assignment, or
transfer approved, unless disapproved by the franchisor, as
specified.
   The act requires a franchisor that terminates or fails to renew a
franchise, other than in accordance with specified provisions of law,
to offer to repurchase from the franchisee the franchisee's
resalable current inventory, as specified.
   This bill would require a franchisor that terminates or fails to
allow the renewal, sale, assignment, or transfer of a franchise,
other than in accordance with specified provisions of law, to, at the
election of the franchisee, either reinstate the franchisee and pay
specified damages or pay the franchisee the fair market value of the
franchise and franchise assets, as provided.
   This bill would also require that a franchisee have the
opportunity to monetize any equity the franchise may have developed
in the franchise business prior to the termination or nonrenewal of
the franchise agreement, as specified. The bill would define equity
for these purposes. The bill would prohibit application of these
provisions to certain franchisees terminated without an opportunity
to cure, including those who abandon their franchises.
   Vote: majority. Appropriation: no. Fiscal committee: no.
State-mandated local program: no.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

  SECTION 1.  Section 20020 of the Business and Professions Code is
amended to read:
   20020.  Except as otherwise provided by this chapter, no
franchisor may terminate a franchise prior to the expiration of its
term, except for good cause. Good cause shall be limited to the
failure of the franchisee to substantially comply with  any
lawful requirement of  the franchise agreement after being
given notice at least 60 days in advance thereof and a reasonable
opportunity, which in no event shall be less than 60 days from the
date of the notice of noncompliance, to cure the failure.
  SEC. 2.  Section 20021 of the Business and Professions Code is
amended to read:
   20021.  If during the period in which the franchise is in effect,
there occurs any of the following events which is relevant to the
franchise, immediate notice of termination without an opportunity to
cure, shall be deemed reasonable:
   (a) The franchisee or the business to which the franchise relates
has been the subject of an order for relief in bankruptcy, judicially
determined to be insolvent, all or a substantial part of the assets
thereof are assigned to or for the benefit of any creditor, or the
franchisee admits his or her inability to pay his or her debts as
they come due;
   (b) The franchisee abandons the franchise by failing to operate
the business for five consecutive days during which the franchisee is
required to operate the business under the terms of the franchise,
or any shorter period after which it is not unreasonable under the
facts and circumstances for the franchisor to conclude that the
franchisee does not intend to continue to operate the franchise,
unless such failure to operate is due to fire, flood, 
earthquake   earthquake,  or other similar causes
beyond the franchisee's control;
   (c) The franchisor and franchisee agree in writing to terminate
the franchise;
   (d) The franchisee makes any material misrepresentations relating
to the acquisition of the franchise business or the franchisee
engages in conduct which reflects materially and unfavorably upon the
operation and reputation of the franchise business or system;
   (e) The franchisee fails, for a period of 10 days after
notification of noncompliance, to comply with any federal, 
state   state,  or local law or regulation,
including, but not limited to, all health, safety, building, and
labor laws or regulations applicable to the operation of the
franchise;
   (f) The franchisee, after curing any failure in accordance with
Section 20020 engages in the same noncompliance whether or not such
noncompliance is corrected after notice;
   (g) The franchisee repeatedly fails to comply with one or more
requirements of the franchise, whether or not corrected after notice;

   (h) The franchised business or business premises of the franchise
are seized, taken over, or foreclosed by a government official in the
exercise of his or her duties, or seized, taken over, or foreclosed
by a creditor,  lienholder   lienholder, 
or lessor, provided that a final judgment against the franchisee
remains unsatisfied for 30 days (unless a supersedeas or other appeal
bond has been filed); or a levy of execution has been made upon the
license granted by the franchise agreement or upon any property used
in the franchised business, and it is not discharged within five days
of such levy;
   (i) The franchisee is convicted of a felony or any other criminal
misconduct which is relevant to the operation of the franchise;
   (j) The franchisee fails to pay any franchise fees or other
amounts due to the franchisor or its affiliate within five days after
receiving written notice that such fees are overdue; or
   (k) The franchisor makes a reasonable determination that continued
operation of the franchise by the franchisee will result in an
imminent danger to public health or safety.
  SEC. 3.  Section 20022 is added to the Business and Professions
Code, to read:
   20022.  (a) While not transferring any equity in the franchisor's
intellectual property to the franchisee, a franchisee shall have the
opportunity to monetize any equity the franchisee may have developed
in the franchised business prior to the termination or nonrenewal of
the franchise agreement.
   (b) (1) Except as provided in paragraph (2), for the purpose of
this section, "equity" means the fair market value, on the date of
the notice of termination or nonrenewal, of the franchise and
franchise assets, and of all investments in the franchise made by the
franchisee, including, but not limited to, purchases of real
property, improvements to real property, equipment, inventory,
advertising, and real estate, as determined by a mutually agreed-upon
appraiser of business value. Equity does not mean any initial
franchise fees paid by franchisee.
   (2) Notwithstanding paragraph (1), if the franchisee sells,
transfers, or assigns a franchise asset before a valuation is made,
the price associated with that sale, transfer, or assignment shall be
deemed the monetized value of the equity of that franchise asset.
   (c) This section does not apply to a franchisee terminated
pursuant to Section 20021.
  SEC. 4.  Section 20028 is added to the Business and Professions
Code, to read:
   20028.  (a) It is unlawful for a franchise agreement to prevent a
franchisee from selling or transferring a franchise or a part of an
interest of a franchise to another person, provided that the person
is qualified under the franchisor's then-existing and reasonable
standards for approval of new franchisees.
   (b) Notwithstanding subdivision (a), a franchisee shall not have
the right to sell, transfer, or assign the franchise, or any right
thereunder, without the written consent of the franchisor, except
that the consent shall not be withheld unless the buyer, transferee,
or assignor does not meet the standards for new franchisees described
in subdivision (a).
  SEC. 5.  Section 20029 is added to the Business and Professions
Code, to read:
   20029.  (a) The franchise agreement shall require the franchisee,
prior to the sale, assignment, or transfer of all or substantially
all of the assets of the franchise business, or a controlling
interest in the franchise business, to another person, to notify the
franchisor, of the franchisee's decision to sell,  transfer
  transfer,  or assign the franchise. The notice
shall be in writing and include all of the following:
   (1) The proposed transferee's name and address.
   (2) A copy of all agreements related to the sale, assignment, or
transfer of the franchised business or its assets.
   (3) The proposed transferee's application for approval to become
the successor franchisee. The application shall include all forms and
related information generally utilized by the franchisor in
reviewing prospective new franchisees, if those forms are readily
made available to the existing franchisee. As soon as practicable
after the receipt of the proposed transferee's application, the
franchisor shall notify, in writing, the franchisee and the proposed
transferee of any additional information necessary to complete the
transfer application.
   (b) (1) The franchise agreement shall require the franchisor,
within 60 days after the receipt of all of the necessary information
required pursuant to subdivision (a), or as specified by written
agreement between the franchisor and the franchisee, to notify the
franchisee of the approval or disapproval of the sale, assignment, or
transfer of the franchise. The notice shall be in writing and be
personally served on the franchisee or sent by certified mail, return
receipt requested. A proposed sale, assignment or transfer shall be
deemed approved, unless disapproved by the franchisor in the manner
provided by this subdivision. If the proposed sale, assignment, or
transfer is disapproved, the franchisor shall include in the notice
of disapproval a statement setting forth the reasons for the
disapproval.
   (2) In any action in which the franchisor's disapproval of a sale,
assignment or transfer pursuant to this subdivision is an issue, the
reasonability of the franchisor's decision shall be a question of
fact requiring consideration of all existing circumstances. For
purposes of this paragraph, the finder of fact may be an arbitrator
specified in the franchise agreement and who satisfies the
requirements of Section 20040.
  SEC. 6.  The heading of Article 6 (commencing with Section 20035)
of Chapter 5.5 of Division 8 of the Business and Professions Code is
amended to read:

      Article 6.  Remedies


  SEC. 7.  Section 20035 of the Business and Professions Code is
repealed.
  SEC. 8.  Section 20035 is added to the Business and Professions
Code, to read:
   20035.  In the event a franchisor terminates or fails to allow the
renewal, sale, assignment, or transfer of a franchise other than in
accordance with the provisions of this chapter, the franchisor shall
reinstate the franchisee under the same terms as the existing
franchise agreement and shall pay all damages caused thereby, or at
the election of the franchisee shall pay the franchisee the fair
market value of the franchise and franchise assets. A court may grant
preliminary and permanent injunctions for a violation of this
chapter.
  SEC. 9.  Section 20036 of the Business and Professions Code is
amended to read:
   20036.  The franchisor may offset against any remedies made
pursuant to Section 20035 any sums owed the franchisor or its
subsidiaries by the franchisee pursuant to the franchise or any
ancillary agreement.