HB2038 - Franchises; relationships; definitions

PREFILED DEC 04 2025 REFERENCE TITLE: franchises; relationships; definitions State of Arizona House of Representatives Fifty-seventh Legislature Second Regular Session 2026 HB 2038 Introduced by Representative Travers AN ACT amending title 44, Arizona Revised Statutes, by adding chapter 42; relating to franchises. (TEXT OF BILL BEGINS ON NEXT PAGE) Be it enacted by the Legislature of the State of Arizona: Section 1. Title 44, Arizona Revised Statutes, is amended by adding chapter 42, to read: CHAPTER 42 FRANCHISES ARTICLE 1. GENERAL PROVISIONS START_STATUTE 44-8051. Purpose The distribution and sales through franchise agreements in this state affect the general economy of this state, the public interest and the public welfare. The purpose of this chapter is to: 1. Define the relationship and responsibilities of franchisors and franchisees in connection with franchise agreements. 2. Correct the franchise systems to establish a more free market balance of power between franchisors and franchisees. 3. Require franchisors to deal fairly with their franchisees with reference to aspects within the franchise relationship. 4. Provide franchisees with judicial relief against franchisors that fail to comply with the law. END_STATUTE START_STATUTE 44-8052. Definitions In this chapter, unless the context otherwise requires: 1. "Franchise": ( a ) Means a contract or agreement, either expressed or implied, oral or written, between two or more persons that does all of the following: ( i ) Grants a franchisee or subfranchisee the right to engage in the business of offering, selling or distributing goods or services under a marketing plan or system prescribed in substantial part by a franchisor. ( ii ) Provides that the operation of the franchisee's business pursuant to a marketing plan or system described in item ( i ) of this subdivision is substantially associated with the franchisor's trademark, service mark, trade name, logotype or advertising or another commercial symbol designating the franchisor or its affiliate. ( iii ) Requires the franchisee to pay, directly or indirectly, a franchise fee. ( b ) Does not include any of the following: ( i ) Any franchise that is governed by the Petroleum Marketing Practices Act (P.L. 95-297; 92 Stat. 322; 15 United States code sections 2801 through 2807). ( ii ) Lease departments, licenses or concessions at or with a general merchandise retail establishment if the lease department, licensee or concessionaire is incidental and ancillary to the general commercial operation of the retail establishment. For the purposes of this item, sales of a leased department, license or concessionaire are incidental and ancillary to the general commercial operation of the retail establishment if they amount to less than ten percent of the establishment's sales. 2. "Franchisee" means a person to whom a franchise is granted. 3. "Franchise fee": ( a ) Means any fee or charge that a franchisee is required to pay or agrees to pay for the right to enter into a business under a franchise agreement, including any payment for goods and services. ( b ) Does not include: ( i ) The purchase of or agreement to purchase goods at a bona fide wholesale price if an obligation is not imposed on the purchaser to purchase or pay for a quantity of goods in excess of what a reasonable businessperson normally would purchase by way of a starting inventory or supply or to maintain a going inventory or supply. ( ii ) The payment of a reasonable service charge to the issuer of a credit card by an establishment accepting or honoring that credit card. ( iii ) the payment, directly or indirectly, of a franchise fee that does not exceed an annual sum of $100. ( iv ) The payment of a sum not exceeding $1,000 annually for the purchase price or rental of fixtures, equipment or other tangible property to be used in and that is necessary for operating the franchised business if the price or rental does not exceed the cost that the franchisee would incur if the franchisee acquires the item from other persons or in the open market. 4. "Franchisor" means a person that grants or has granted a franchise. END_STATUTE START_STATUTE 44-8053. Waiver; void Any condition, stipulation or provision purporting to bind any person to waive compliance with any provision of this chapter is contrary to public policy and void . END_STATUTE START_STATUTE 44-8054. Jurisdiction; applicability; nonprofits A. This chapter 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. B. Any provision of a franchise agreement requiring the franchisee to waive the provisions of this chapter is contrary to public policy and is void and unenforceable. C. This chapter does not apply to A nonprofit organization that is operated on a cooperative basis by and for independent retailers that wholesales goods and services primarily to its member retailers if all of the following apply: 1. Control and ownership of each member is substantially equal. 2. Membership is limited to those who will use the services furnished by the nonprofit organization. 3. Transfer of ownership is prohibited or limited. 4. Capital investment does not receive a return. 5. There are substantially equal benefits that pass to the members on the basis of patronage of the nonprofit organization . 6. Members are not personally liable for obligations of the nonprofit organization in the absence of a direct undertaking or authorization by the members. 7. Services of the nonprofit organization are furnished primarily for the use of the members. 8. Each member and prospective member is provided with an offering circular. 9. Receipts, income or profit of the nonprofit organization is not paid to any profitmaking entity, except for arms-length payments for necessary goods and services, and members are not required to purchase goods or services from any designated profitmaking entity. 10. The nonprofit organization is subject to an action for rescission or damages if the nonprofit organization fraudulently induces a person to join the organization. END_STATUTE START_STATUTE 44-8055. Grounds for termination before term expiration; good cause Except as otherwise provided by this chapter, a franchisor may not terminate a franchise before the expiration of its term except for good cause. Except as provided in section 44-8056, good cause is limited to the failure of the franchisee to substantially comply with the lawful requirements imposed on the franchisee by the franchise agreement after being given notice at least ninety days before the termination and an opportunity to cure the failure within ninety days after the date of the notice of noncompliance. The period to exercise the right to cure may not exceed three hundred sixty-five days unless there is a separate agreement between the franchisor and franchisee to extend the time. END_STATUTE START_STATUTE 44-8056. Grounds for immediate notice of termination without opportunity to cure A. Immediate notice of termination without an opportunity to cure is reasonable if during the period in which the franchise is in effect any of the following occurs that is relevant to the franchise: 1. The franchisee or the business to which the franchise relates is the subject of an order for relief in bankruptcy or has been judicially determined to be insolvent and either: ( a ) All or a substantial part of the assets are assigned to or for the benefit of any creditor. ( b ) The franchisee admits the franchisee's inability to pay the franchisee's debts as the debts come due. 2. The franchisee abandons the franchise by failing to operate the business for five consecutive days during which the franchisee is required to operate the business under the terms of the franchise or any shorter period after which it is reasonable 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 due to a fire, a flood, an earthquake, a public health emergency or other similar causes beyond the franchisee's control. 3. The franchisor and franchisee agree in writing to terminate the franchise. 4. The franchisee makes any material misrepresentations relating to the acquisition of the franchise business, or the franchisee engages in conduct that reflects materially and unfavorably on the operation and reputation of the franchise business or system. 5. For a period of ten days after a notification of noncompliance, The franchisee fails to comply with any federal, state or local law, including all health, safety, building and labor laws applicable to the operation of the franchise. 6. After curing any failure pursuant to section 44-8055, The franchisee engages in the same noncompliance whether or not the noncompliance is corrected after notice. 7. The franchisee repeatedly fails to comply with one or more requirements of the franchise, whether or not corrected after a notification of noncompliance. 8. The franchised business or business premises of the franchise is seized, taken over or foreclosed by a government official in the exercise of the government official's duties or seized, taken over or foreclosed by a creditor, lienholder or lessor if either: ( a ) A final judgment against the franchisee remains unsatisfied for thirty days unless a supersedeas or other appeal bond has been filed. ( b ) A levy of execution has been made on the license granted by the franchise agreement or on any property used in the franchised business and it is not discharged within five days of the levy. 9. The franchisee is convicted of a felony or any other criminal misconduct that is relevant to operating the franchise. 10. The franchisee fails to pay any franchise fees or other amounts due to the franchisor or its affiliate within five days after receiving written notice that the fees are overdue. 11. The franchisor makes a reasonable determination that continued operation of the franchise by the franchisee will result in an imminent danger to public health or safety. B. If the franchise expressly allows termination for a reason described in subsection A of this section, there is a lawful termination or nonrenewal of a separate motor fuel franchise governed by provisions of the Petroleum Marketing Practices Act (P.L. 95-297; 92 Stat. 322; 15 United States Code sections 2801 through 2807) that is operated by the franchisee or affiliate of the franchisee located at the same business premises if both franchises are granted by the same franchisor or an affiliate of the franchisor. END_STATUTE START_STATUTE 44-8057. Lawful termination or nonrenewal A. Except as provided in subsection B of this section, on a lawful termination or nonrenewal of a franchisee, the franchisor shall purchase from the franchisee, at the value of the price paid minus depreciation, all inventory, supplies, equipment, fixtures and furnishings purchased or paid for under the terms of the franchise agreement or any ancillary or collateral agreement between the franchisee and the franchisor or its approved suppliers and sources that are, at the time of the notice of termination or nonrenewal, in the franchisee's possession or used by the franchisee in the franchise business. The franchisor may receive clear title to and possession of all items purchased from the franchisee under this subsection. B. This section does not require the franchisor to purchase any personalized items, inventory, supplies, equipment, fixtures or furnishings if either: 1. The inventory, supplies, equipment, fixtures or furnishings are not reasonably required to conduct the operation of the franchise business in accordance with the franchise agreement or any ancillary or collateral agreement. 2. The franchisee, at the cessation of operation of the franchise business by the franchisee, cannot lawfully grant or does not grant the franchisor clear title and possession when the franchisor pays the franchisee for the inventory, supplies, equipment, fixtures or furnishings. c. This section does not apply: 1. If the franchisee declines a bona fide offer of renewal from the franchisor. 2. If the franchisor does not prevent the franchisee from retaining control of the principal place of the franchise business. 3. To any termination or nonrenewal of a franchise due to a publicly announced and nondiscriminatory decision by the franchisor to completely withdraw from all franchise activity within the relevant geographic market area in which the franchise is located. 4. If the franchisor and franchisee mutually agree in writing to terminate or not renew the franchise. 5. To any inventory, supplies, equipment, fixtures or furnishings that are sold by the franchisee between the date of the notice of termination or nonrenewal and the cessation of operation of the franchise business by the franchisee pursuant to the termination or nonrenewal. D. On the termination or nonrenewal of a franchise, a franchisor may offset against the amounts owed to a franchisee under subsection A of this section any amounts owed by the franchisee to the franchisor if the franchisee agrees to the amount owed or the franchisor has received a final adjudication of any amounts owed. END_STATUTE START_STATUTE 44-8058. Notice of intention not to renew; sale of business A. A franchisor must renew a franchise unless the franchisor provides the franchisee with a written notice of its intention not to renew at least one hundred eighty days before the end of the franchise agreement and any of the following applies: 1. During the one hundred eighty-day period the franchisor allows the franchisee to sell the franchisee's business to a purchaser that meets the franchisor's then-current requirements for granting new franchises or if the franchisor is not granting a significant number of new franchises, the then-current requirements for granting renewal franchises. 2. The refusal to renew is not for the purpose of converting the franchisee's business premises to operation by employees or agents of the franchisor for the franchisor's own account. on expiration of the franchise, the franchisor agrees not to seek to enforce any covenant of the nonrenewed franchisee not to compete with the franchisor or franchisees of the franchisor. This paragraph does not prohibit a franchisor from exercising a right of first refusal to purchase the franchisee's business. 3. Termination would be allowed pursuant to section 44-8055 or 44-8056. 4. The franchisee and the franchisor agree not to renew the franchise. 5. The franchisor withdraws from distributing its products or services through franchises in the geographic market served by the franchisee, if all of the following occur: ( a ) On expiration of the franchise, the franchisor agrees not to seek to enforce any covenant of the nonrenewed franchisee not to compete w [Text truncated for display. 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