Benefits to Franchisees of California's New Franchise Law

On Sunday, Oct. 11, Gov. Jerry Brown (D-CA) signed California bill AB-525 into law. This sweeping new law gives franchisees across the state more protections when purchasing, transferring and terminating their franchise agreement.

Sponsored by the Coalition of Franchisee Associations (CFA), the law affects new franchisees (i.e., those who are granted or renew an agreement after Jan. 1, 2016) and current franchisees upon sale, transfer or termination of their franchise agreement.

Specifically, the law amends the California Franchise Relations Act as follows:

Termination

  • 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 requirements of the franchise agreement."
  • Changes 30-day notice and cure period to at least 60-day notice and cure period. (Current immediate health and safety issues without full cure period remain).

Sale and Transfer

  • Prohibits franchise agreements from preventing the sale/transfer of a franchise as long as transferee is qualified under then-existing standards for new or renewing franchises.
  • Requires franchisee to notify franchisor in writing prior to the sale/transfer.
  • Requires franchisors to communicate standards required for approval of new or renewing franchises.
  • Mandates that franchisors must notify franchisee of approval/disapproval of sale/transfer in writing within 60 days and if disapproved, must give reason. If not disapproved within 60 days, it is considered approved.

Termination / Non renewal

  • Requires franchisors who terminate/fail to renew and take possession of the premises to repurchase all resalable inventory, and purchase equipment and fixtures at depreciated value.
  • Applicable for legal terminations and non renewals.
  • Previous law only required repurchase of inventory in cases of non renewal or unlawful termination.
  • Requires franchisors who terminate/fail to renew improperly as defined by the law to be liable for actual damages.

To read the new law, click here. The CFA will be hosting a webinar in the next several weeks to explain the details of the law and how it affects California franchisees.