What constitutes a material breach of the City Publications franchise agreement regarding transfer of ownership?
City_Publications Franchise · 2025 FDDAnswer from 2025 FDD Document
In recognition of the requirements of the California Franchise Investment Law, Cal.
Corp.
Code §§31000-31516 and the California Franchise Relations Act, Cal.
Bus.
And Prof.
Code §§20000-20043, the Franchise Agreement for CITY PUBLICATIONS FRANCHISE GROUP, INC. shall be amended as follows:
The California Franchise Relations Act provides rights to the Franchise concerning termination or nonrenewal of the Franchise Agreement, which may supersede provisions in the Franchise Agreement, specifically Sections 5.B and 19.
Sections 5B.10 and 20B.2 of the Franchise Agreement require Franchisee to sign a general release as a condition of renewal and transfer of the franchise; such release shall exclude claims arising under California Franchise Investment Law and California Franchise Relations Act.
Section 17A of the Franchise Agreement contains a covenant not to compete which extends beyond the expiration or termination of the Franchise Agreement; this covenant may not be enforceable under California law.
Section 18B.1.h of the Franchise Agreement which terminates the Franchise Agreement upon the bankruptcy of the Franchisee may not be enforceable under federal bankruptcy law (11 U.S.C.
Section 101, et seq.).
- The Franchise Agreement requires litigation to be conducted in a court located in the State of Georgia.
This provision might not be enforceable for any cause of action arising under California law.
- The Franchise Agreement requires application of the laws of the State of Georgia.
This provision might not be enforceable under California law.
- Section 19E of the Franchise Agreement contains a liquidated damages clause.
Under California Civil Code Section 1671, certain liquidated damages clauses are unenforceable.
- Section 24G of the Franchise Agreement requires binding arbitration.
The arbitration will occur at the forum indicated in Section 24B with the costs being borne by the prevailing party.
Prospective franchisees are encouraged to consult 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 the Franchise Agreement restricting venue to a forum in the State of Georgia.
Source: Item 23 — RECEIPT (FDD pages 39–129)
What This Means (2025 FDD)
Based on the 2025 City Publications Franchise Disclosure Document, the excerpts provided do not detail specific conditions that constitute a material breach of the franchise agreement related to the transfer of ownership. However, the document does include amendments for several states (Maryland, California, and Rhode Island) that address the franchisee's requirement to sign a general release as a condition of renewal and transfer of the franchise. These amendments stipulate that such releases must exclude claims arising under the respective state's franchise laws. This suggests that requiring an overly broad release could potentially create conflict during a transfer.
Additionally, Section 17A of the agreement, regarding covenants not to compete, is mentioned in the California amendment as potentially unenforceable under California law if it extends beyond the expiration or termination of the franchise agreement. While not directly related to transfer, disputes over non-compete clauses could complicate a transfer of ownership. The FDD excerpts also mention conditions regarding franchisee conduct post-termination or expiration of the agreement, such as relinquishing phone numbers and assumed names associated with City Publications. Failure to comply with these requirements could potentially lead to legal action.
To fully understand what actions would constitute a material breach regarding transfer of ownership, a prospective City Publications franchisee should consult the full franchise agreement and ask the franchisor for specific examples. It would be prudent to seek legal counsel to review the entire agreement and understand all obligations and potential pitfalls related to transferring the franchise.