Currrent as of February 4, 2022

Assembly Bill No. 2672

Introduced by Assembly Member Holden

February 20, 2020

An act to amend Section 20022, 20029, and 20041 of the Business and Professions Code, relating to franchises.

LEGISLATIVE COUNSEL’S DIGEST

AB 2672, as introduced, Holden. California Franchise Relations Act.

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. The act authorizes a franchisor, upon the termination or nonrenewal of a franchise, to offset any amounts owed to the franchisee against any amounts owed by the franchisee to the franchisor.

This bill would authorize that offset provided the franchisee agrees to the amount owed or the franchisor has received a final adjudication of any amounts owed.

Existing law requires a franchisee, before the sale, assignment, or transfer of a franchise, as specified, to another person, to notify, in writing, the franchisor of the franchisee’s intent to sell, transfer, or assign the franchise. Existing law requires this notice of transfer to include specified information and meet certain criteria.

This bill would specify that these provisions apply to any transfer if a new franchise agreement is required to be signed as a result of the transfer.

The bill would limit its application to a franchise agreement entered into, amended, or renewed on or after January 1, 2021, or to franchises of an indefinite duration that may be terminated without cause.

Vote: majority Appropriation: no Fiscal Committee: no Local Program: no

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

SECTION 1.

The Legislature finds and declares the following:

(a) The California Franchise Relations Act (CFRA) was first passed by the Legislature and enacted into law in 1980.

(b) The last set of substantial updates to the CFRA occurred in 2015 with the passage of Assembly Bill 525 (Chapter 776 of the Statutes of 2015).

SEC. 2.

Section 20022 of the Business and Professions Code is amended to read:

20022.

(a) Except as provided in this section, upon a lawful termination or nonrenewal of a franchisee, the franchisor shall purchase from the franchisee, at the value of price paid, minus depreciation, all inventory, supplies, equipment, fixtures, and furnishings purchased or paid for under the terms of the franchise agreement or any ancillary or collateral agreement by the franchisee to the franchisor or its approved suppliers and sources, that are, at the time of the notice of termination or nonrenewal, in the possession of the franchisee or used by the franchisee in the franchise business. The franchisor shall have the right to receive clear title to and possession of all items purchased from the franchisee under this section.

(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 or to which the franchisee, at the cessation of operation of the franchise business by the franchisee, cannot lawfully, or does not, grant the franchisor clear title and possession upon the franchisor’s payment to the franchisee for the inventory, supplies, equipment, fixtures, or furnishings.

(d) This section shall not apply if the franchisor does not prevent the franchisee from retaining control of the principal place of the franchise business.

(e) This section shall not apply to any termination or nonrenewal of a franchise 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 if the franchisor and franchisee mutually agree in writing to terminate or not renew the franchise.

(g) 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.

(h) Upon the termination or nonrenewal of a franchise, a franchisor may offset against the amounts owed to a franchisee under this section any amounts owed by the franchisee to the franchisor, provided the franchisee agrees to the amount owed or the franchisor has received a final adjudication of any amounts owed.

SEC. 3.

Section 20029 of the Business and Professions Code is amended to read:

20029.

(a) The franchisee shall, prior to the sale, assignment, or transfer of a franchise, all or substantially all of the assets of a 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, all or substantially all of the assets of the franchise business, or the 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 franchise, the assets of the franchise business, or the interest in the franchise business.

(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. If the franchisor’s then-existing standards for the approval of new or renewing franchisees are not readily available to the franchisee when the franchisee notifies the franchisor of the franchisee’s intent to sell, transfer, or assign the franchise, the assets of the franchise business, or the controlling or noncontrolling interest in the franchise business, the franchisor shall communicate the standards to the franchisee within 15 calendar days.

(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 proposed sale, assignment, or transfer. The notice shall be in writing and shall be delivered to the franchisee by business courier or receipted mail. 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) This section does not require a franchisor to exercise a contractual right of first refusal.

(c) This section does not prohibit a franchisor from exercising the contractual right of first refusal to purchase a franchise, all or substantially all of the assets of a franchise business, or a controlling or noncontrolling interest in a franchise business after receipt of a bona fide offer from a proposed purchaser to purchase the franchise, assets, or interest. Any franchisor exercising the contractual right of first refusal shall offer the seller 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.

(e) This section applies to any transfer if a new franchise agreement is required to be signed as a result of the transfer.

SEC. 4.

Section 20041 of the Business and Professions Code is amended to read:

20041.

(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, or to franchises of an indefinite duration 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.

(c) The amendments to this chapter made by the act adding this subdivision shall apply only to franchise agreements entered into, amended, or renewed on or after January 1, 2021, or to franchises of an indefinite duration that may be terminated by the franchisee or franchisor without cause.

California Franchise Relations Act