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PAG LIN 1 1 Section 1. Section 523H.5, Code 1995, is amended by 1 2 striking the section and inserting in lieu thereof the 1 3 following: 1 4 523H.5 TRANSFER OF FRANCHISE. 1 5 A franchisor shall not deny the surviving spouse or heirs 1 6 of a deceased or permanently incapacitated franchisee the 1 7 opportunity to participate in the ownership of the franchise 1 8 under a valid franchise agreement for a reasonable period of 1 9 time, which in no case need be more than one year after the 1 10 death or permanent incapacity of the franchisee. During that 1 11 time, the surviving spouse or heirs of the franchisee shall 1 12 either meet all of the qualifications which the franchisee was 1 13 subject to at the time of the death or permanent incapacity of 1 14 the franchisee, or sell, transfer, or assign the franchise to 1 15 a person who meets the franchisor's current qualifications for 1 16 a new franchisee. The rights granted pursuant to this 1 17 subsection shall be granted subject to the surviving spouse or 1 18 heirs of the franchisee maintaining all standards and 1 19 obligations of the franchise. This subsection does not 1 20 prohibit a franchisor from exercising the right of first 1 21 refusal contained in a franchise agreement after receipt of a 1 22 bona fide offer to purchase the franchise by a proposed 1 23 purchaser of the franchise. 1 24 Sec. 2. Section 523H.7, Code 1995, is amended to read as 1 25 follows: 1 26 523H.7 TERMINATION. 1 27 1. Except as otherwise provided by this chapter, a 1 28 franchisor shall not terminate a franchise prior to the 1 29 expiration of its term except for good cause. For purposes of 1 30 this section, "good cause" is cause based upon a legitimate 1 31 business reason. "Good cause" includes, but is not limited 1 32 to, the failure of the franchisee to comply with anymaterial1 33 lawful requirement of the franchise agreement, provided that1 34the termination by the franchisor is not arbitrary or1 35capricious when compared to the actions of the franchisor in2 1other similar circumstances. 2 2 2. Prior to termination of a franchise for good cause, a 2 3 franchisor shall provide a franchisee with written notice 2 4 stating the basis for the proposed termination. After service 2 5 of written notice, the franchisee shall have a reasonable 2 6 period of time to cure the default, whichin no event shall be2 7lessneed not be more than thirty daysor more than ninety2 8daysfor any default other than the default of a valid payment 2 9 under the franchise agreement which need not be more than ten 2 10 days. 2 11 3. Notwithstanding subsection 2, a franchisor may 2 12 terminate a franchisee upon written notice and without an 2 13 opportunity to cure if any of the following apply: 2 14 a. (1) The franchisee or the business to which the 2 15 franchise relates files for protection under applicable 2 16 federal bankruptcy laws, is declared bankrupt, or is 2 17 judicially determined to be insolvent. 2 18 (2) All or a substantial part of the assets of the 2 19 franchisee or the business to which the franchise relates are 2 20 assigned to or for the benefit of any creditor. 2 21 (3) The franchisee admits to an inability to pay debts as 2 22 they come due. 2 23 b. The franchisee voluntarily abandons the franchise by 2 24 failing to operate the business for five consecutive business 2 25 days during which the franchisee is required to operate the 2 26 business under the terms of the franchise, or any shorter 2 27 period after which it is not unreasonable under the facts and 2 28 circumstances for the franchisor to conclude that the 2 29 franchisee does not intend to continue to operate the 2 30 franchise, unless the failure to operate is due to 2 31 circumstances beyond the control of the franchisee. 2 32 c. The franchisor and franchisee agree in writing to 2 33 terminate the franchise. 2 34 d. The franchisee knowingly makes any material 2 35 misrepresentations or knowingly omits to state any material 3 1 facts relating to the acquisition or ownership or operation of 3 2 the franchise business. 3 3 e. The franchisee repeatedly fails to comply withthe same3 4material provisionone or more requirements ofathe franchise 3 5 agreement,when the enforcement of the material provision by3 6the franchisor is not arbitrary or capricious when compared to3 7the franchisor in other similar circumstanceswhether or not 3 8 the franchisee complies after receiving notice of the failure 3 9 to comply. 3 10 f. The franchised business or business premises of the 3 11 franchisee are lawfully seized, taken over, or foreclosed by a 3 12 government authority or official. 3 13 g. The franchisee is convicted of a felony or any other 3 14 criminal misconduct whichmaterially andis likely to 3 15 adverselyaffectsaffect the operation, maintenance, or 3 16 goodwill of the franchise in the relevant market. 3 17 h. The franchisee operates the franchised business in a 3 18 manner thatimminentlyendangers the public health and safety. 3 19 Sec. 3. Section 523H.8, Code 1995, is amended to read as 3 20 follows: 3 21 523H.8 NONRENEWAL OF A FRANCHISE. 3 22 A franchisor shall not refuse to renew a franchise unless 3 23botheither of the followingapplyapplies: 3 24 1. Good cause exists as defined in section 523H.7. 3 25 2. The franchisee has been notified of the franchisor's 3 26 intent not to renew at least six months prior to the 3 27 expiration date or any extension of the franchise agreement., 3 28 and during the period prior to expiration of the franchise, 3 29 the franchisor permits the franchisee to sell the franchisee's 3 30 business to a purchaser who meets, at the time of the sale, 3 31 the franchisor's current requirements for a new franchisee, 3 32 and one or more of the following apply: 3 332. Any of the following circumstances exist:3 34a. Good cause exists as defined in section 523H.7,3 35provided that the refusal of the franchisor to renew is not4 1arbitrary or capricious when compared to the actions of the4 2franchisor in other similar circumstances.4 3 a. The refusal to renew is not for the purpose of 4 4 converting the franchisee's business premises to operation by 4 5 employees or agents of the franchisor under the direct control 4 6 and for the direct benefit of the franchisor, provided that 4 7 this paragraph does not prohibit a franchisor from exercising 4 8 a right of first refusal to purchase the franchisee's 4 9 business. 4 10 b. The franchisor and franchisee agree not to renew the 4 11 franchise, provided that upon the expiration of the franchise,4 12the franchisor agrees not to seek to enforce any covenant of4 13the nonrenewed franchise not to compete with the franchisor or4 14franchisees of the franchisor. 4 15 c. The franchisor completely withdraws from directly or 4 16 indirectly distributing its products or services in the 4 17 geographic market served by the franchisee, provided that upon4 18expiration of the franchise, the franchisor agrees not to seek4 19to enforce any covenant of the nonrenewed franchisee not to4 20compete with the franchisor or franchisees of the franchisor. 4 21 d. Upon expiration of the franchise, the franchisor agrees 4 22 not to seek to enforce any covenant of the nonrenewed 4 23 franchisee not to compete with the franchisor or franchisees 4 24 of the franchisor. 4 25 Sec. 4. Section 523H.13, Code 1995, is amended to read as 4 26 follows: 4 27 523H.13 PRIVATE CIVIL ACTION. 4 28 A person who violates a provision of this chapteror order4 29issued under this chapterisliable for damages caused by the4 30violation, including, but not limited to, costs and reasonable4 31attorneys' and experts' fees, andsubject tootherappropriate 4 32 relief including injunctive and other equitable relief. 4 33 Sec. 5. Sections 523H.6, 523H.10, 523H.11, and 523H.12, 4 34 Code 1995, are repealed. 4 35 EXPLANATION 5 1 This bill amends chapter 523H which applies to certain 5 2 franchises operated in this state. 5 3 Section 523H.5, relating to the transfer of a franchise, is 5 4 stricken and rewritten to provide that a franchisor shall not 5 5 deny a surviving spouse or heir of a deceased or permanently 5 6 incapacitated franchisee an opportunity to participate in the 5 7 ownership of the franchise under a valid agreement for a 5 8 reasonable period of time. The period of time need be no more 5 9 than one year after the death or permanent incapacity of the 5 10 franchisee during which time the surviving spouse or heirs of 5 11 the franchisee shall either meet all of the qualifications 5 12 which the franchisee was subject to at the time of the death 5 13 or permanent incapacity of the franchisee, or sell, transfer, 5 14 or assign the franchise to a person who meets the franchisor's 5 15 current qualifications for a new franchisee. 5 16 Currently, section 523H.5 provides that a franchisee may 5 17 transfer the franchised business and franchise to a 5 18 transferee, provided that the transferee satisfies the 5 19 reasonable current qualifications of the franchisor for new 5 20 franchisees; except as otherwise provided in the section, the 5 21 franchisor may exercise a right of first refusal after receipt 5 22 of a proposal from the franchisee to transfer the franchise; a 5 23 franchisor may require certain conditions including successful 5 24 training of the transferee and the payment of certain 5 25 expenses; a franchisor shall not withhold consent to a 5 26 franchisee making a public offering of the franchise's 5 27 securities without good cause; a franchisee may transfer the 5 28 franchisee's interest for the unexpired term of the franchise 5 29 agreement; a franchisee must give no less than 60 days' 5 30 written notice of a transfer, and on request of the franchisor 5 31 provide a written list of all ownership interests in the 5 32 franchise subsequent to the transfer; a franchisor shall not 5 33 transfer its interest in the franchise unless reasonable 5 34 provision is made for the performance of the franchisor's 5 35 obligations under the franchise agreement by the transferee; a 6 1 transfer by the franchisee is deemed to be approved 60 days 6 2 after the franchisee submits the request for consent unless 6 3 the franchisor withholds consent as evidenced in writing; the 6 4 franchisor shall not discriminate against a proposed 6 5 transferee on the basis of race, color, national origin, sex, 6 6 or physical handicap; a franchisor shall not obligate the 6 7 franchisee to undertake obligations or relinquish rights as a 6 8 condition of transfer, and a franchisor may not enforce any 6 9 agreement against the transferor which prohibits the 6 10 transferor from engaging in any lawful occupation or 6 11 enterprise; and defines certain occurrences which are not to 6 12 be considered a transfer requiring the consent of the 6 13 franchisor except for a transfer within an existing ownership 6 14 group. 6 15 Section 523H.7, which relates to the termination of a 6 16 franchise agreement, is amended by reducing the time period 6 17 considered reasonable for curing a default from not less than 6 18 30 days to a period which need not be more than 30 days for 6 19 any default other than the default of a valid payment under 6 20 the franchise agreement which need not be more than 10 days. 6 21 The section is also amended to provide that the franchisor may 6 22 terminate a franchisee upon written notice and without an 6 23 opportunity to cure if all or a substantial part of the assets 6 24 of the franchisee or the business to which the franchise 6 25 relates are assigned to or for the benefit of any creditor, or 6 26 the franchisee admits to an inability to pay debts as they 6 27 come due; or if a franchisee repeatedly fails to comply with 6 28 one or more requirements under the franchise agreement, 6 29 whether or not the franchisee complies after receiving notice 6 30 of a failure to comply. 6 31 Section 523H.7 is also amended to provide that a franchise 6 32 may be terminated if the franchisee is convicted of a felony 6 33 or other criminal misconduct which is likely to adversely 6 34 affect the franchise in the relevant market, or if the 6 35 franchisee operates the business in a manner that endangers 7 1 the public health and safety. Currently, those provisions 7 2 provide that termination may occur if the franchisee is 7 3 convicted of a felony or criminal misconduct which materially 7 4 and adversely affects the franchise, or operates the business 7 5 in a manner that imminently endangers the public health and 7 6 safety. 7 7 Section 523H.8 is amended to provide that a franchisor 7 8 shall not refuse to renew a franchise unless good cause 7 9 exists, or proper notice of the refusal to renew is given to 7 10 the franchisee and one or more other requirements apply. 7 11 Section 523H.13 is amended to provide that a person who 7 12 violates a provision of chapter 523H is subject to appropriate 7 13 relief. Current law also allows for the recovery of damages 7 14 caused by the violation, including, but not limited to, costs 7 15 and reasonable attorneys' and experts' fees. 7 16 Sections 523H.6, relating to encroachment; 523H.10, 7 17 relating to duty of good faith; 523H.11, relating to the 7 18 repurchase of assets; and 523H.12, relating to independent 7 19 sourcing, are repealed. 7 20 LSB 1654HC 76 7 21 mj/jj/8
Text: HSB00006 Text: HSB00008 Text: HSB00000 - HSB00099 Text: HSB Index Bills and Amendments: General Index Bill History: General Index
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