Last month, Governor Jerry Brown (D-CA) signed California bill AB-525 into law, offering franchises throughout the state extra protections when purchasing, transferring and terminating their franchise agreement. Effective for franchise agreements signed after January 1, 2016, the law impacts new franchises and current franchisees upon sale, transfer or termination of their franchise agreements.
The benefits of the amended California Franchise Relations Act include:
- Changes good cause for termination from failure to comply with “any lawful requirement of the franchise agreement” to failure to “substantially comply with the lawful requirement of the franchise agreement.”
- 30-day notice and cure period changes to at least 60-day notice and cure period.
Sale and Transfer
- Restricts franchise agreements from denying the sale/transfer of a franchise, if a transferee is qualified under then-existing standards for new or renewing franchises.
- Makes it mandatory for franchisee to reveal the sale/transfer in writing to the franchisor.
- Makes it mandatory for franchisors to communicate standards necessary for approval of new or renewing franchises
- Requires franchisors to notify franchisee of approval/disapproval of sale/transfer in writing within 60 days and must provide a reason if disapproved. It is considered approved if it is not disapproved within 60 days.
Termination or Non-renewal
- Forces franchisors who terminate/fail to renew and take possession of the premises to repurchase all resalable inventory, and buy equipment and fixtures at a lower value.
- Applies to all legal terminations and non-renewals.
- Forces franchisors who improperly terminate/fail to renew, as established by law, to be liable for damages.