California Franchise Relations Act: Termination, Nonrenewal, and Remedies

The California Franchise Relations Act, codified at Business and Professions Code sections 20000 through 20043, limits how a franchisor can end or decline to renew its agreement with a California franchisee. The statute requires good cause and at least 60 days’ written notice with a cure period before termination, demands 180 days’ advance notice before nonrenewal, and voids any clause in the franchise agreement that tries to waive those protections or push disputes into another state’s courts.¹

These rules govern the ongoing relationship after the franchise is sold. A separate statute, the California Franchise Investment Law, handles pre-sale registration and disclosure.²

Who the Law Protects

The Act reaches any franchise where the franchisee lives in California or the franchised business operates (or has operated) in the state.³ A franchisor based in Texas, Florida, or anywhere else is still bound by California law for its California locations.

A relationship counts as a franchise under California law when three things are true: the franchisee operates under a marketing plan substantially prescribed by the franchisor, the business is closely associated with the franchisor’s trademark, and the franchisee pays a franchise fee.⁴ Courts read the definition broadly. If those elements fit, the Act applies even when the parties use a different label for their arrangement.

What a Franchisor Must Do to Terminate

A franchisor cannot end a franchise mid-term without good cause. Good cause under the Act means the franchisee substantially failed to comply with a lawful requirement of the franchise agreement. Subjective dissatisfaction, personality conflicts, or a desire to reclaim a profitable territory do not qualify.¹

Before the termination date, the franchisor must send written notice at least 60 days in advance identifying the specific noncompliance. The franchisee then has at least 60 days from that notice to cure the problem. If the franchisee fixes it in time, the termination cannot go forward. The cure window maxes out at 75 days unless both parties agree to extend it.¹

Notice has to be in writing and delivered by registered mail, certified mail, or personal delivery. It must state whether the franchisor is terminating or not renewing, the specific reasons, and the effective date. A vague notice that omits any of these elements does not satisfy the statute.

When the Cure Period Does Not Apply

Section 20021 lists situations where a franchisor may terminate immediately, with no opportunity to cure.⁵ They include:

Insolvency, bankruptcy, assignment of assets for the benefit of creditors, or an admission of inability to pay debts as they come due.
Abandonment of the business for five consecutive business days (or a shorter period if the circumstances show the franchisee has walked away), unless the closure results from fire, flood, earthquake, or a similar event beyond the franchisee’s control.
Material misrepresentation in acquiring the franchise, or conduct that materially damages the brand’s reputation.
Failure to come into compliance with applicable federal, state, or local laws within 10 days of notice.
Repeated noncompliance, even if each individual breach was cured after notice.
Seizure of the premises or a key business asset by a government official or creditor, unresolved for 30 days (judgments) or five days (levies).
A felony conviction or other criminal misconduct relevant to running the franchise.
Unpaid franchise fees or other sums owed to the franchisor that remain unpaid five days after written notice.
Mutual written agreement to end the relationship.

Franchisors sometimes try to fit ordinary disputes into these categories to avoid the 60-day cure period. Whether the cited ground genuinely applies, and whether the franchisor acted in good faith rather than using an immediate-termination ground as pretext, is a question a court will examine.

What a Franchisor Must Do to Not Renew

Letting an agreement lapse at the end of its term is not a free pass. A franchisor that does not intend to renew must give the franchisee at least 180 days’ written notice before the agreement expires, and must also satisfy at least one of several additional conditions.⁶

During the 180-day notice period, the franchisor has to let the franchisee sell the business to a buyer who meets the franchisor’s current standards for granting new franchises (or renewal franchises, if the franchisor is not currently granting new ones). This gives the franchisee a real chance to recover the value of the investment rather than losing it at expiration.

A franchisor also cannot refuse renewal in order to take over the location and run it as a company-owned operation. The statute specifically bars nonrenewal aimed at converting the premises to direct franchisor control. A contractual right of first refusal to buy the business is still permitted, but refusing renewal as a back door to seize the location is not.

When the nonrenewal is not based on the franchisee’s own noncompliance, the franchisor must agree not to enforce any non-compete covenant against the former franchisee once the agreement expires. That protection keeps a franchisee who loses the franchise through no fault of their own from being blocked out of the same industry.

The Act does permit nonrenewal without these additional protections in narrow situations: when the franchisee’s conduct would independently justify termination under sections 20020 or 20021, when both sides agree, when the franchisor completely withdraws from franchising in the geographic market (still subject to the non-compete and anti-conversion limits), or when the parties cannot agree on changes to franchise terms that would apply equally to every franchisee in the system.

Rights the Franchisor Cannot Contract Around

Any clause in a franchise agreement that requires the franchisee to waive a protection the Act provides is void and unenforceable as a matter of public policy.³ A waiver buried in a long contract carries no legal weight.

The same goes for forum selection. A clause that forces claims arising from a California franchise agreement into a court outside California is void.⁷ National franchise agreements often point to the franchisor’s home state. For California franchisees, those clauses do not control.

Every franchise agreement in California also carries an implied covenant of good faith and fair dealing that the contract cannot strip away. Where the franchisor holds discretionary power (approving relocations, setting supply prices, consenting to transfers), those decisions have to rest on legitimate business reasons. Using discretionary authority as leverage to push a franchisee toward abandonment, or imposing unreasonable conditions unrelated to brand standards, can support a bad-faith claim. Sudden, unexplained fee hikes or pricing structures on mandatory proprietary products that function as hidden profit extraction can cross the same line.

What You Can Do When the Rules Are Broken

The Act does not have a dedicated enforcement agency. Franchisees enforce it by filing suit in California court, and the venue protection keeps those cases in-state.⁷

The direct remedy the statute offers is injunctive. A court can order a franchisor to stop a wrongful termination or nonrenewal, keeping the franchise operating while the dispute is resolved. Moving quickly is what makes this remedy useful; a franchisee who waits may watch the business disappear before the court can act.

Money damages generally come through claims the Act expressly preserves: breach of contract for lost profits, relocation expenses, and investment losses, along with common-law theories where the facts support them. California’s Unfair Competition Law, Business and Professions Code section 17200, treats any unlawful business practice as actionable, so a violation of the Franchise Relations Act can serve as the predicate for a UCL claim opening the door to restitution and broader injunctive relief.⁸

Cross-Checking the FDD

Federal law requires every franchisor nationwide to give prospective franchisees a Franchise Disclosure Document covering 23 topics before signing.⁹ Item 17 of the FDD sets out the specific contract terms for renewal, termination, transfer, and dispute resolution, including what counts as a curable default, how long the cure period runs, what breaches trigger immediate termination, and the franchisee’s post-termination obligations.¹⁰

Reading Item 17 next to the Act is the fastest way to see where a franchise agreement conflicts with California law. Any conflict is resolved in the franchisee’s favor, because the Act’s protections cannot be waived.³

1
California Legislative Information. California Code Business and Professions Code 20020 – Termination
2
Department of Financial Protection and Innovation. California Franchise Relations Act
3
California Legislative Information. California Code Business and Professions Code 20015 – Jurisdiction
4
California Legislative Information. California Code Corporations Code 31005 – Franchise
5
California Legislative Information. California Code Business and Professions Code 20021 – Immediate Termination
6
California Legislative Information. California Code Business and Professions Code 20025 – Nonrenewal
7
California Legislative Information. California Code Business and Professions Code 20040.5 – Venue
8
California Legislative Information. California Code BPC 17200 – Unfair Competition
9
Federal Trade Commission. Franchise Rule
10
eCFR. 16 CFR Part 436 – Disclosure Requirements and Prohibitions Concerning Franchising