BILL NUMBER: AB 525 AMENDED
BILL TEXT
AMENDED IN SENATE JULY 2, 2015
AMENDED IN SENATE JUNE 23, 2015
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
20036, and 20041 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 would
require that the period for a reasonable opportunity to cure
the failure be no less than 60 days from the date of the
notice of noncompliance. The bill would prohibit the period for
curing the failure from exceeding 75 days, except as specified.
This bill would make it unlawful for a franchise agreement to
prevent a franchisee from selling or transferring all or
substantially all of the assets of the franchise business as defined,
or a controlling or noncontrolling interest in the
franchise business to another person, provided that the person is
qualified under the franchisor's then-existing and reasonable
standards for approval of new franchisees, as specified. The bill
would prohibit a sale, transfer, or assignment if a franchise, or
substantially all of the assets or a controlling or
noncontrolling interest in the franchise business, 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 require the franchisee, prior to the sale,
assignment, or transfer of all or substantially all of the assets of
the franchise business, as defined, or a controlling or
noncontrolling interest in the franchise business, to another
person, to notify the franchisor of the franchisee's intent to sell,
transfer, or assign the franchise or its assets or interest, as
specified, and would require the notice to be in writing and include
specified information. The bill would 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 receipted mail. 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, fixtures, and
furnishings purchased from the franchisor or paid for by the
franchisee, as specified.
This bill would, if a franchisor violates these provisions,
require the finder of fact in awarding damages to 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. The bill would provide for injunctive relief in the event
of a violation or threatened violation of these provisions. The
bill would limit its application to a franchise agreement entered
into or renewed on or after January 1, 2016, or to franchises of an
indefinite duration that may be terminated without cause.
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 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. The period to exercise the right to cure shall
not exceed 75 days unless there is a separate agreement between the
franchisor and franchisee to extend the time.
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) 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, fixtures, and furnishings purchased or paid for 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, and, at the time of the notice of termination
or nonrenewal, are in possession of the franchisee or used in the
franchise business.
(b) This section shall not require the franchisor to purchase any
personalized items, inventory, supplies, equipment, fixtures, 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 principal place of the franchise business.
(e) This section shall not apply to any termination or nonrenewal
of a franchisee due to a 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 in
Section 20999.
(f) This section shall not apply to any inventory, supplies,
equipment, fixtures, or furnishings that are sold by the franchisee
between the date of the notice of termination or nonrenewal, and the
cessation of operation of the franchise business, by the franchisee,
pursuant to the termination or nonrenewal.
(g) 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 franchisor to prevent a
franchisee from selling or transferring all or substantially all of
the assets of the franchise business, or a controlling or
noncontrolling interest in the franchise business, to another
person provided that the person is qualified under the franchisor's
then-existing and reasonable standards, as consistently applied to
similarly situated franchisees operating within the franchise brand,
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 substantially
all of the assets of the franchise business, or a controlling
or noncontrolling interest in the franchise business, 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 at least equal to the value offered in the bona
fide offer.
(d) For the purpose of this section "franchise business" shall
include a legal entity that is a party to a franchise agreement.
SEC. 5. Section 20029 is added to the Business and Professions
Code, to read:
20029. (a) The franchisee shall, prior to the sale, assignment,
or transfer of all or substantially all of the assets of the
franchise business, or a controlling or noncontrolling
interest in the franchise business, to another person, notify the
franchisor, of the franchisee's intent to sell, transfer, or assign
the franchise or substantially all of the assets of the franchise
business, or a controlling or noncontrolling interest in
the franchise business. The notice shall be in writing, delivered to
the franchisor by business courier or by receipted mail 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,
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 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, notify the franchisee of the approval
or disapproval of the sale, assignment, or transfer of the franchise.
The notice shall be in writing and shall be delivered to the
franchisor by business courier or receipted mail within 15 calendar
days. 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 reasonableness 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. Nothing in this paragraph shall
prohibit summary judgment when the reasonableness of transfer
approval or disapproval can be decided as a matter of law.
(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 at least equal to the value offered in the bona
fide offer.
(d) For the purpose of this section "franchise business" shall
include a legal entity that is a party to a franchise agreement.
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. (a) In the event a franchisor terminates or fails to renew
a franchisee, in violation of this chapter, the franchisee shall be
entitled to either of the following remedies:
(1) Reinstatement of the franchisee under the same terms as the
existing franchise agreement, and the franchisor shall pay all
damages caused to the franchisee from the violation.
(2) Upon request of the franchisee, or if the relief in paragraph
(1) is determined by the finder of fact to be impossible or
impracticable, then the franchisor shall pay the franchisee the fair
market value of the franchise and franchise assets and any other
damages caused by the violation of this chapter.
(b) A court may grant preliminary and permanent injunctions for a
violation or threatened 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 prior recovery by the franchisee
pursuant to Section 20022 and any sums owed the franchisor or its
subsidiaries by the franchisee pursuant to the franchise or any
ancillary agreement.
SEC. 10. Section 20041 of the Business
and Professions Code is amended to read:
20041. The (a)
Except as provided in subdivision (b), the provisions of this
chapter shall apply only to franchises granted or renewed on or after
January 1, 1981 1981, or to franchises
of an indefinite duration which that
may be terminated by the franchisee or franchisor without cause.
(b) The amendments to this chapter made by the act adding this
subdivision shall apply only to franchise agreements entered into or
renewed on or after January 1, 2016, or to franchises of an
indefinite duration that may be terminated by the franchisee or
franchisor without cause.