Existing law, the California Franchise Relations Act, sets forth certain requirements related to franchises between a franchisor, subfranchisor, and franchisee. For these purposes, the act defines a “franchise fee” as any fee or charge that a franchisee or subfranchisor is required to pay or agrees to pay for the right to enter into a business under a franchise agreement, as specified, but excludes prescribed purchases and payments from that definition. Existing law provides that the act applies to any franchise when either the franchisee is domiciled in this state, or the franchised business is or has been operated in this state.

This bill would prohibit a franchisor from using any fee collected from a franchisee for a stated purpose, as specified, for anything other than the stated purpose and would require that such fees collected be segregated from the franchisor’s funds at all times. The bill would prohibit the amount allocated to administrative expenses or overhead from exceeding 10% of the amount collected for a fee for a stated purpose unless the franchisor discloses the exact amount or percentage to be allocated to administration or overhead, as prescribed. The bill would also require a franchisor to provide franchisees with an annual detailed accounting as to the amounts collected and their use and application for any fees for a stated purpose.