Sec. 6. Transfer of a franchise
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/bill/115/hr/470/ih/section-6·A research copy — for the controlling text, always check the official state or federal source. Not legal advice.
A franchisee may assign an interest in a franchised business or in a franchise to a transferee provided the transferee satisfies the reasonable qualifications then generally applied by the franchisor in the offer and sale of franchises. For the purpose of this section, a reasonable current qualification for a new franchisee is a qualification based upon a legitimate business reason. If the proposed transferee does not meet the reasonable current qualifications of the franchisor, the franchisor may refuse to permit the transfer, provided that the refusal of the franchisor to consent to the transfer is not arbitrary or capricious and the franchisor states the grounds for its refusal in writing to the franchisee.
A franchisee shall give a franchisor not less than 60 days written notice of a proposed transfer of a transferable interest, and on request shall provide in writing the ownership interests of all persons holding or claiming an equitable or beneficial interest in the franchise subsequent to the transfer or the franchisee, as appropriate. A transfer by a franchisee is considered to have been approved 60 days after the franchisee submits the request for permission to transfer the franchise involved unless, within that time the franchisor refuses to consent to the transfer as evidenced in writing in accordance with subsection (a).
A franchisor may require as a condition of a transfer that— the transferee successfully complete a reasonable training program; a reasonable transfer fee be paid to reimburse the franchisor for the franchisor’s reasonable and actual expenses directly attributable to the transfer; the transferring franchisee pay or make reasonable provision to pay any amount due the franchisor or the franchisor’s affiliate; or the financial terms of the transfer at the time of the transfer, comply with the franchisor’s current financial requirements for franchisees.
A franchisor may not condition its consent to a transfer described in subsection
(a)on— franchisee’s forgoing existing rights other than those contained in the franchise agreement; a franchisee’s entering into a release of claims broader in scope than a counterpart release of claims offered by the franchisor to the franchisee; or requiring the franchisee or transferee to make, or agree to make, capital improvements, reinvestments, or purchases in an amount greater than the franchisor could have reasonably required under the terms of the franchisee’s existing franchise agreement. A franchisee may assign the franchisee’s interest in the franchise for the unexpired term of the franchise agreement, and a franchisor shall not require the franchisee or the transferee to enter into a franchise agreement that has different material terms or financial requirements as a condition of the transfer. A franchisor may not withhold its consent to a franchisee’s making a public offering of its securities without good cause if the franchisee, or the owner of the franchisee’s interest in the franchise, retains control over more than 25 percent of the voting power as the franchisee. A franchisor may not withhold its consent to a pooling of interests, to a sale or exchange of assets or securities, or to any other business consolidation amongst its existing franchisees, provided the constituents are each in material compliance with their respective obligations to the franchisor. The following occurrences shall not be considered transfers requiring the consent of the franchisor under a franchise agreement, and a franchisor shall not impose any fees, payments, or charges in excess of a franchisor’s cost to review the relevant matter: The succession of ownership or management of a franchise upon the death or disability of a franchisee, or of an owner of a franchise, to the surviving spouse, heir, or partner active in the management of the franchise unless the successor objectively fails to meet within 1 year the then current reasonable qualifications of the franchisor for franchisees. Incorporation of a proprietorship franchisee, provided that the franchisor may require a personal guarantee by the franchisee of obligations related to the franchise. A transfer within an existing ownership group of a franchise provided that more than 50 percent of the franchise is held by persons who meet the franchisor’s reasonable current qualifications for franchisees. If less than 50 percent of the franchise would be owned by persons who objectively meet the franchisor’s reasonable current qualifications, the franchisor may refuse to authorize the transfer. A transfer of less than a controlling interest in the franchise to the franchisee’s spouse or child or children, provided that more than 50 percent of the entire franchise is held by those who meet the franchisor’s reasonable current qualifications. If less than 50 percent of the franchise would be owned by persons who objectively meet the franchisor’s reasonable current qualifications, the franchisor may refuse to authorize the transfer. A grant or retention of a security interest in the franchised business or its assets, or an ownership interest in the franchisee, if the security agreement establishes an obligation on the part of the secured party enforceable by the franchisor to give the franchisor, simultaneously with notice to the franchisee, notice of the secured party’s intent to foreclose on the collateral, and a reasonable opportunity to redeem the interest of the secured party and recover the secured party’s interest in the franchise or franchised business by satisfying the secured obligation. A franchisor may not exercise any purported right of first refusal or right to purchase with regard to any franchise, or interest or assets of a franchisee, upon the happening of any event described in paragraphs
(1)through (5). After the transfer of a transferor’s complete interest in a franchise, a franchisor may not enforce against the transferor any covenant of the franchise agreement purporting to prohibit the transferor from engaging in any lawful occupation or enterprise. This subsection shall not limit the franchisor from enforcing a contractual covenant against the transferor not to exploit the franchisor’s trade secrets or intellectual property rights (including protection of trade dress) except by agreement with the franchisor.