SUMMARY--Regulates operation of franchises. (BDR 52-1167)
FISCAL NOTE: Effect on Local Government: No.
Effect on the State or on Industrial Insurance: No.
EXPLANATION - Matter in italics is new; matter in brackets [ ] is material to be omitted.
AN ACT relating to franchises; regulating the operation of franchises and the contractual relationships between franchisors and franchisees; and providing other matters properly relating thereto.
THE PEOPLE OF THE STATE OF NEVADA, REPRESENTED IN SENATE AND ASSEMBLY, DO ENACT AS FOLLOWS:
Section 1 Chapter 597 of NRS is hereby amended by adding thereto the provisions set forth as sections 2 to 22, inclusive, of this act.
Sec. 2 As used in sections 2 to 22, inclusive, of this act, unless the context otherwise requires, the words and terms defined in sections 3 to 11, inclusive, of this act have the meanings ascribed to them in those sections.
Sec. 3 1. "Franchise" means an arrangement which is evidenced in an oral or written agreement, either express or implied, which:
(a) Grants the right to a franchisee to distribute goods or provide services under a marketing plan prescribed or suggested in substantial part by a franchisor.
(b) Requires the franchisee to pay a franchise fee to the franchisor or his affiliate.
(c) Allows the franchise to be substantially associated with a trade-mark, service mark, trade name, logo, advertisement or other commercial symbol or designation of the franchisor or his affiliate.
2. The term does not include an arrangement evidenced in a contract regulated by chapter 482, 709 or 711 of NRS, NRS 597.120 to 597.180, inclusive, or 597.270 to 597.470, inclusive, or any contract whereby a governmental agency of this state grants a franchise to a person to perform a service.
Sec. 4 1. "Franchise fee" means a direct or indirect payment to purchase or operate a franchise.
2. The term does not include:
(a) A payment by a purchaser pursuant to a bona fide loan from a seller to a purchaser.
(b) The purchase of inventory goods at a bona fide wholesale price.
(c) The payment of rent which reflects payment for the economic value of leased real or personal property.
(d) The payment of a reasonable service charge to the issuer of a credit card by an establishment that accepts or honors the credit card.
Sec. 5 "Franchisee" means a person to whom a franchise is granted, including, without limitation:
1. A subfranchisor with regard to his relationship with a franchisor; and
2. A subfranchisee with regard to his relationship with a subfranchisor.
Sec. 6 "Franchisor" means a person who grants a franchise, or an affiliate of such a person, including, without limitation, a subfranchisor with regard to his relationship with a franchisee.
Sec. 7 "Good cause" means cause based upon the failure of a franchisee to comply with any material and lawful requirement of a franchise agreement after having received written notification of and being allowed a reasonable period to cure the failure.
Sec. 8 "Reasonable current qualifications" means qualifications based upon a legitimate business reason.
Sec. 9 "Subfranchisee" means a person who is granted a franchise from a subfranchisor.
Sec. 10 "Subfranchisor" means a person who has received the right from a franchisor to sell or negotiate the sale of franchises within a certain geographical territory.
Sec. 11 "Transfer" means any change in ownership or control of a franchise, franchised business or a franchisee.
Sec. 12 1. A provision in:
(a) A franchise agreement; or
(b) A document that is ancillary to a franchise agreement,
which restricts jurisdiction or venue to a forum other than this state is void.
2. A condition, stipulation or provision in:
(a) A franchise agreement; or
(b) A document that is ancillary to a franchise agreement,
which requires the application of the law of another state in lieu of the provisions of this act is void.
3. A civil action or proceeding arising out of a franchise agreement may be commenced wherever jurisdiction over the parties and subject matter exists, even if the agreement limits actions or proceedings to a designated jurisdiction.
4. Venue for a civil action commenced pursuant to this act must be determined in accordance with chapter 13 of NRS.
Sec. 13 A condition, stipulation or provision in a contract or franchise agreement that requires a person to waive any right provided by the provisions of this act or relieves a person of an obligation or liability imposed by the provisions of this act is void.
Sec. 14 1. A franchisee may transfer a franchised business and franchise to a transferee if the transferee satisfies the reasonable current qualifications required by a franchisor for new franchisees. The franchisor may require the transferee to enter into a new or different franchise agreement as a condition of transfer only if the transfer takes place at the end of the term of the franchise agreement of the current franchisee.
2. The franchisee may transfer his interest in the franchise for the unexpired term of the franchise agreement, and if he does so, the franchisor shall not require the transferee to enter into a new or different franchise agreement as a condition of the transfer.
3. The franchisee must give notice to the franchisor of a proposed transfer and must request consent from the franchisor at least 60 days before the actual transfer is proposed to occur. If the franchisor so requests, the franchisee must provide a written itemization of the ownership interests of all persons that will hold or claim an equitable or beneficial interest in the franchise after the transfer.
4. A transfer by the franchisee is deemed to be approved 60 days after the franchisee submits a request for consent to the franchisor, unless the franchisor withholds consent to the transfer in writing before the expiration of the 60 days. The franchisor's written withholding of consent must specify the reason for the withholding of consent. The contents of the franchisor's written withholding of consent is privileged and may not be used as a basis for a claim of defamation by any person mentioned therein.
5. If the proposed transferee does not meet the reasonable current qualifications of the franchisor, the franchisor may refuse to permit the transfer, if the refusal of the franchisor to consent to the transfer is not arbitrary or capricious when compared to actions of the franchisor in similar circumstances.
6. Except as otherwise provided in section 15 of this act, after receipt of a proposal from the franchisee to transfer the franchise, the franchisor may exercise a right of first refusal if such a right is contained in the franchise agreement.
7. The franchisor may, as a condition of a transfer, enforce a provision of a franchise agreement that requires the:
(a) Transferee to complete successfully a reasonable training program.
(b) Transferee or franchisee to pay a reasonable transfer fee to reimburse the franchisor for the reasonable and actual expenses of the franchisor directly attributable to the transfer.
(c) Franchisee to pay or make arrangements acceptable to the franchisor to pay any undisputed amount due to the franchisor or his affiliate pursuant to the franchise agreement.
Sec. 15 The following occurrences are not transfers requiring the consent of a franchisor or making applicable the right of first refusal by the franchisor pursuant to a franchise agreement or section 14 of this act:
1. The succession of the spouse, child or partner of the franchisee to the position of operating manager upon the death or disability of the operating manager, unless the successor, within 1 year after his succession to that position, fails to meet the then reasonable current qualifications of the franchisor for an operating manager, and enforcement of the qualifications is not arbitrary or capricious when compared to actions of the franchisor in similar circumstances.
2. The incorporation of a franchise which the franchisee had been operating as a proprietorship, if the incorporation does not prohibit the franchisor from requiring a personal guaranty by the franchisee of obligations related to the franchise.
3. The transfer of less than a controlling interest in the franchise to the spouse or child of the franchisee, if more than 50 percent of the entire franchise is held by persons who meet the franchisor's reasonable current qualifications. If less than 50 percent of the franchise would be owned by persons who meet the franchisor's reasonable current qualifications, the occurrence must be considered a transfer and the franchisor may refuse to authorize the transfer, if enforcement of the reasonable current qualifications is not arbitrary or capricious when compared to actions of the franchisor in similar circumstances.
4. The transfer of less than a controlling interest in the franchise to an employee stock ownership plan or employee incentive plan, if more than 50 percent of the entire 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 meet the franchisor's reasonable current qualifications, the occurrence must be considered a transfer and the franchisor may refuse to authorize the transfer, if enforcement of the qualifications is not arbitrary or capricious when compared to actions of the franchisor in similar circumstances.
Sec. 16 1. Except as otherwise provided in subsection 3, a franchisor shall not terminate a franchise before the expiration of its term except for good cause, and then only if the termination by the franchisor is not arbitrary or capricious when compared to actions of the franchisor in similar circumstances.
2. Before termination of the franchise for good cause, the franchisor shall provide the franchisee with written notice stating the basis for the proposed termination. After service of written notice, the franchisee must have a reasonable period of time to cure the default, which may not be less than 30 days or more than 90 days unless the default constitutes a threat to the health or safety of the public, in which case the franchisor may demand that the default be cured within 48 hours.
3. The franchisor may terminate the franchise upon written notice and without an opportunity to cure if any of the following apply:
(a) The franchisee voluntarily abandons the franchise by failing to operate the business for 5 consecutive business days during which the franchisee is required to operate the business pursuant to the terms of the franchise agreement, or any shorter period after which it is not unreasonable under the facts and circumstances for the franchisor to conclude that the franchisee does not intend to continue to operate the franchise, unless the failure to operate is because of circumstances beyond the control of the franchisee.
(b) The franchisee knowingly makes material misrepresentations or knowingly fails to state material facts relating to the acquisition, ownership or operation of the franchise business.
(c) The franchisee repeatedly fails to comply with the same material provision of the franchise agreement, when the enforcement of the material provision by the franchisor is not arbitrary or capricious when compared to actions of the franchisor in similar circumstances.
(d) The franchised business or business premises of the franchisee are lawfully seized, taken or foreclosed by a governmental authority or official.
(e) The franchisee is convicted of a felony or any other criminal misconduct which materially and adversely affects the operation, maintenance or good will of the franchise in the relevant market.
Sec. 17 A franchisor shall not restrict a franchisee from associating with other franchisees or from forming or participating in a trade association, and shall not retaliate or discriminate against a franchisee for engaging in such activities.
Sec. 18 1. A franchisor and franchisee have a duty to deal with each other and execute the terms of the franchise agreement in good faith.
2. As used in this section, "good faith" means performance in such a manner that no action or failure to act will have the effect of depriving the other party of the full expected benefit of the contract.
Sec. 19 A person who violates any provision of this act is liable for damages caused by the violation, including, but not limited to, costs and reasonable fees of attorneys and expert witnesses, and is subject to other appropriate remedies including injunctive and other equitable relief.
Sec. 20 A franchisor owes a fiduciary duty to his franchisee when:
1. Performing bookkeeping, collections, payroll or accounting services on behalf of the franchisee.
2. Administering or supervising the administration of an advertising or promotional fund to which the franchisee is required to make contributions.
Sec. 21 No provision of this act may be construed to prohibit or restrict a franchisor from making a franchise available to a person who lacks the qualifications ordinarily required of franchisees by the franchisor pursuant to a bona fide program of affirmative action or a similar program adopted by the franchisor.
Sec. 22 1. The provisions of this act apply to franchises that are operated in this state only if:
(a) The premises from which the franchise is operated are physically located in this state; or
(b) The franchise includes marketing rights in or to this state and the franchisee's principal business office is physically located in this state.
2. The provisions of this act do not:
(a) Limit any liability that exists pursuant to any other specific statute or at common law; or
(b) Apply to any legal action based on facts which occurred before October 1, 1997, or to any franchise agreement entered into, last amended or renewed before October 1, 1997.