BILL ANALYSIS Ó
AB 2637
Page 1
Date of Hearing: April 13, 2016
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Lorena Gonzalez, Chair
AB
2637 (Wilk) - As Amended March 28, 2016
-----------------------------------------------------------------
|Policy | Banking and Finance |Vote:| 12 - 0 |
|Committee: | | | |
| | | | |
| | | | |
|-------------+-------------------------------+-----+-------------|
| | | | |
| | | | |
| | | | |
-----------------------------------------------------------------
Urgency: No State Mandated Local Program: NoReimbursable: No
SUMMARY:
This bill modifies the conditions that must be met in order for
a franchisor to claim an exemption from certain registration and
disclosure requirements. Specifically, this bill:
1)Eliminates the following conditions that must be met in order
for a franchisor to claim an exemption from having to amend
its franchise registration in connection with a negotiated
AB 2637
Page 2
sale:
a) A potential franchisee must receive summary information
of material terms negotiated by the franchisor for a
California franchise in the prior 12 months within five
business days, upon request of the franchisee.
b) A statement indicating that copies of the negotiated
terms are available upon request and the name, telephone
number, and that the address of the representative of the
franchisor for a copy of those terms may be obtained.
c) That the negotiated terms, on the whole, confer
additional benefits to the potential franchisee.
2)Adds a condition that the disclosure document states that
California law does not prohibit a franchisor from negotiating
the standard franchise agreement contained in the disclosure
document.
FISCAL EFFECT:
Negligible state costs.
COMMENTS:
1)Purpose and background. This bill is intended to facilitate
negotiation between a franchisor and potential franchisees.
According to the sponsor, the Franchise Law Committee of the
Business Law Section of the State Bar of California, current
law stifles negotiations by making the results of the
AB 2637
Page 3
negotiations publicly available.
Franchises subject to the California Franchise Investment Law
(CFIL) may only be offered or sold after compliance with
various registration and disclosure obligations. Under
existing law, any franchise agreement being offered or sold in
California must be registered with the Department of Business
Oversight (DBO). However, that registration requirement may be
exempted in the case of a negotiated sale. In these instances,
a franchisor and a potential franchisee negotiate the terms of
the franchise agreement, resulting in a change to the
franchise agreement originally registered with DBO. In those
cases, the franchisor does not need to amend the original
registration as long as certain conditions are met. Those
conditions include:
a) The initial offer is registered;
b) Within 5 business days after the request by a
prospective franchisee, a franchisor must provide to the
potential franchisee a summary description of each
material negotiated term that was negotiated by the
franchisor for a California franchise during the previous
12 months and a statement indicating that copies of the
negotiated terms themselves are available upon written
request.
c) The negotiated terms, on the whole, must benefit the
prospective franchisee,
d) And the franchisor must certify or declare in an
appendix to its application for renewal that it has
complied with all the requirements of the statute, if this
exemption is claimed.
AB 2637
Page 4
This exemption helps prospective franchisees understand the
terms that other franchisees received in negotiations with a
franchisor. However, the sponsor of AB 2637 argues that this
policy has actually resulted in franchisors being unwilling to
negotiate with potential franchisees in California because the
terms of those negotiations become widely known, possibly
becoming a "new normal." AB 2637 would replace the conditions b)
and c) described above and replace them with a condition that
the disclosure document in California law does not prohibit a
franchisor from negotiating the standard franchise agreement.
There is no registered opposition to this bill.
Analysis Prepared by:Luke Reidenbach / APPR. / (916)
319-2081