For a Belocal franchise in California, what is the effect of the amendment on the franchisee's rights concerning termination?
Belocal Franchise · 2025 FDDAnswer from 2025 FDD Document
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- Item 17 of the franchise disclosure document is supplemented by the following language:
- a. California Business and Professions Code Sections 20000 through 20043 provide rights to the franchisee concerning termination, transfer, or non-renewal of a franchise. If the Franchise Agreement contains a provision that is inconsistent with the law, the law will control.
- b. The Franchise Agreement provides for termination upon bankruptcy. This provision may not be enforceable under federal bankruptcy law (11 U.S.C.A. Sec. 101 et seq.).
- c. The Franchise Agreement contains a covenant not to compete which extends beyond the termination of the franchise. This provision may not be enforceable under California law.
- d. The franchise agreement contains a liquidated damages clause. Under California Civil Code Section 1671, certain liquidated damages clauses are unenforceable.
- e. The franchise agreement requires binding arbitration. The arbitration will occur in the city in which Franchisor maintains its principal business office at the time of the arbitration with the costs being borne by initially be paid equally by the two sides to the arbitration. The arbitrator must award to the prevailing party the reasonable costs and fees, including attorneys' fees, incurred in the arbitration. Prospective franchisees are encouraged to consult private legal counsel to determine the applicability of California and federal laws (such as Business and Professions Code section 20040.5, Code of Civil Procedure section 1281, and the Federal Arbitration Act) to any provisions of a franchise agreement restricting venue to a forum outside the State of California.
- f. The Franchise Agreement requires application of the laws of Texas. This provision may not be enforceable under California law.
Source: Item 22 — CONTRACTS (FDD page 71)
What This Means (2025 FDD)
According to Belocal's 2025 Franchise Disclosure Document, California Business and Professions Code Sections 20000 through 20043 provide specific rights to Belocal franchisees regarding termination, transfer, or non-renewal of their franchise agreement. The amendment clarifies that if any provision within the Belocal Franchise Agreement is inconsistent with California law, the state law will take precedence. This ensures that franchisees in California are protected by the rights and regulations afforded to them under state law, regardless of what the franchise agreement may state. This amendment aims to protect the franchisee by ensuring adherence to California's franchise laws.
Furthermore, the amendment addresses specific clauses within the Belocal Franchise Agreement that may conflict with California law. For instance, the agreement may include a covenant not to compete that extends beyond the termination of the franchise, which may not be enforceable under California law. Similarly, a liquidated damages clause within the agreement might be unenforceable under California Civil Code Section 1671. The agreement also stipulates that the laws of Texas govern the agreement, but this may not be enforceable under California law. By highlighting these potential conflicts, the amendment serves as a warning to franchisees, advising them that certain provisions in the agreement may not be upheld in California due to conflicts with state law.
Additionally, the amendment addresses binding arbitration, noting that while the arbitration will occur in the city where Belocal maintains its principal business office, the arbitrator must award reasonable costs and fees, including attorney's fees, to the prevailing party. The amendment encourages prospective Belocal franchisees to seek legal counsel to understand how California and federal laws apply to any provisions restricting venue to a forum outside of California. This proactive encouragement of legal consultation underscores the importance of franchisees understanding their rights and obligations under both the franchise agreement and applicable laws. The inclusion of these points serves to protect franchisees and ensure compliance with California law, superseding conflicting terms in any document related to the franchise.