Bill Text: CA AB525 | 2015-2016 | Regular Session | Amended
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 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 SENATE JUNE 15, 2015
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 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, with certain exceptions, require the franchisor,
upon a lawful termination or nonrenewal of a franchisee, to
compensate the franchisee at the value of price paid minus
depreciation of all inventory, supplies, equipment, and furnishings
purchased by the franchisee from the franchisor, as specified.
This bill would require , if 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, violates
these provisions, require the finder of fact in awarding damages
to , at the election of the franchisee, either
reinstate the franchisee and pay specified damages or
at the election of the franchisee, or if reinstatement is impossible
or impracticable, require the franchisor to pay the franchisee
the fair market value of the franchise and franchise assets and
any other damages , 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 the franchise
agreement after being given notice at least 60 days in advance
thereof of the termination 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, 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, 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, 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.
20022. (a) Upon a lawful
termination or nonrenewal of a franchisee, the franchisor shall
compensate the franchisee, at the value of price paid
minus depreciation, of all inventory, supplies, equipment, and
furnishings purchased by the franchisee from the franchisor or its
approved suppliers and sources under the terms of the franchise
agreement or any ancillary or collateral agreement.
(b) This section shall not require the franchisor to purchase any
personalized items, inventory, supplies, equipment, or furnishings
not reasonably required to conduct the operation of the franchise
business in accordance with the franchise agreement or any ancillary
or collateral agreement.
(c) This section shall not apply when the franchisee declines a
bona fide offer of renewal from the franchisor.
(d) This section shall not apply if the franchisee retains control
of the premises of the franchise business.
(e) This section shall not apply to any termination or nonrenewal
of a franchisee due to publicly announced and nondiscriminatory
decision by the franchisor to completely withdraw from all franchise
activity within the relevant geographic market area in which the
franchise is located. For the purpose of this section "relevant
geographic market area" shall have the same meaning as Section 20999.
(f) Upon the termination of a franchisee, a franchisor may offset
against amounts owed to a franchisee under this section any amounts
owed by such franchisee to the franchisor.
SEC. 4. Section 20028 is added to the Business and Professions
Code, to read:
20028. (a) It is unlawful for a franchise agreement
franchisor 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 the
approval of new or renewing 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 or renewing
franchisees described in subdivision (a).
(c) Nothing in this section shall prohibit a franchisor from
exercising the contractual right of first refusal to purchase a
franchise after receipt of a bona fide offer to purchase the
franchise by a proposed purchaser of the franchise. A franchisor
exercising the contractual right of first refusal shall offer the
franchisee payment equal to or greater than the value offered in the
bona fide offer.
SEC. 5. Section 20029 is added to the Business and Professions
Code, to read:
20029. (a) The franchise agreement shall require the
franchisee, franchisee shall, 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. 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 forms, financial disclosures, and related
information generally utilized by the franchisor in reviewing
prospective new franchisees, if those forms are readily made
available to the existing franchisee. If the forms are not
readily available, the franchisee shall request and the
franchisor shall deliver the forms to the franchisee by business
courier or receipted mail within 15 calendar days. 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 or
documentation necessary to complete the transfer application.
(b) (1) The franchise agreement shall require the
franchisor, franchisor shall, within 60 days
after the receipt of all of the necessary information and
documentation 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 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 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.
(3) Nothing in this subdivision requires a franchisor to exercise
a contractual right of first refusal.
(c) Nothing in this section shall prohibit a franchisor from
exercising the contractual right of first refusal to purchase a
franchise after receipt of a bona fide offer to purchase the
franchise by a proposed purchaser of the franchise. Any franchisor
exercising the contractual right of first refusal shall offer the
franchisee payment equal to or greater than the value offered in the
bona fide offer.
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,
violates this chapter, the finder of fact in awarding damages
shall either require the franchisor shall
to 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 franchisee, or if reinstatement is impossible
or impracticable, require the franchisor to pay the franchisee
the fair market value of the franchise and franchise assets.
assets, and any other damages caused by the violation
of this chapter. 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.
