On January 1, 2016, amendments to the California Franchise Relationship Act go into effect that broaden California franchisees’ rights against termination and penalize franchisors for improper termination or nonrenewal of a franchise.
As amended a franchisee will have at least 75 days to cure non-monetary faults and at least 10 days to cure regulatory violations before a franchisor can terminate the franchise agreement. The franchisor is still permitted to terminate the franchise in the event of certain emergency situations, such as foreclosure, eviction or franchisee misconduct. Repeated violations of the franchise agreement by the franchisee may also form the basis for franchise termination.
Under the new law a franchise agreement terminated at the discretion of the franchisor requires the franchisor to buy back any equipment, fixtures, furnishings, inventory and supplies that were paid for under the terms of the franchise agreement or a subsequent supplier agreement, at the franchisee’s depreciated value.
The franchisee, however, will be permitted to sell or keep the equipment, etc., as well as the commercial lease. The franchisor will not have to repurchase these assets if the franchisor exits the geographical market where the franchise is located.
Franchisees are also granted the right to transfer ownership of the franchise or any portion of the franchise’s equity to anyone who qualifies under the franchisor’s existing standards. There are explicit notice, content and time periods for transfers in the new law.
The franchisee has several remedies, including reinstatement, damages for losses incurred or reimbursement by the franchisor for the fair market value of the franchise, if the franchisor violates the new termination and non-renewal provisions of the Act.
If you are a franchisor who is ready to terminate a franchise the time to do it is now before the new amended law takes effect. If you have any questions or concerns about termination or non-renewal of a franchise, do not hesitate to seek legal counsel from the attorneys at Israel & Samuels, LLP.
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