HB 2038

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_STATUTE44-8051. 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_STATUTE44-8052. 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_STATUTE44-8053. 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_STATUTE44-8054. 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_STATUTE44-8055. 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_STATUTE44-8056. 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_STATUTE44-8057. 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_STATUTE44-8058. 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 with the franchisor or
franchisees of the franchisor.
(b) The failure
to renew is not for the purpose of converting the business to operation by
employees or agents of the franchisor for the franchisor's own account.
(c) If the
franchisor determines to sell, transfer or assign its interest in marketing
premises occupied by a franchisee whose franchise agreement is not renewed
pursuant to this paragraph, either:
(i) During the
one hundred eighty-day period after giving notice, The franchisor offers
the franchisee a right of first refusal of a bona fide offer made by another to
purchase the franchisor's interest in the premises.� THe right of first refusal
under this item shall be at least a thirty-day period.
(ii) In the
case of the sale, transfer or assignment to another person of the franchisor's
interest in one or more other controlled marketing premises, the other person
in good faith offers the franchisee a franchise on substantially the same terms
and conditions currently being offered by the other person to other
franchisees.
6. The franchisor and the franchisee
fail to agree to changes or additions to the terms and conditions of the
franchise agreement, if the changes or additions would result in renewal of the
franchise agreement on substantially the same terms and conditions on which the
franchisor is then customarily granting renewal franchises, or if the
franchisor is not then granting a significant number of renewal franchises, the
terms and conditions on which the franchisor is then customarily granting original
franchises.� The franchisor may give the franchisee written notice of a date at
least thirty days after the date of the notice, on or before which a proposed
written agreement of the terms and conditions of the renewal franchise shall be
accepted in writing by the franchisee. THe notice, when given at
least one hundred eighty days before the end of the franchise term, may state
that if the franchisee fails to accept, the notice is deemed a notice of
intention not to renew at the end of the franchise term.
B. This Section does not prohibit a
franchisor from offering or agreeing before the expiration of the current
franchise term to extend the term of the franchise for a limited period in
order to satisfy the time of notice of nonrenewal requirement of that
franchise. END_STATUTE
START_STATUTE44-8059. Death of franchisee or majority shareholder; rights of surviving
spouse, heirs or estate
A. A franchisor may not deny the
surviving spouse, heirs or estate of a deceased franchisee or the majority
shareholder of the franchisee the opportunity to participate in the ownership
of the franchise under a valid franchise agreement for a reasonable time after
the death of the franchisee or majority shareholder of the franchisee. During
that time, the surviving spouse, heirs or estate of the deceased shall either
satisfy all of the then-current qualifications for a purchaser of a franchise
or sell, transfer or assign the franchise to a person that satisfies the
franchisor's then-current standards for new franchisees. The rights
granted pursuant to this franchise shall be granted subject to the surviving
spouse, heirs or estate of the deceased maintaining all standards and
obligations of the franchise.
b. This section does not prohibit a
franchisor from exercising the right of first refusal to purchase a franchise
after receiving a bona fide offer to purchase the franchise by a proposed
purchaser of the franchise. END_STATUTE
START_STATUTE44-8060. Franchise prohibited from preventing sale or transfer of
franchise to qualified person; franchisor consent required; right of first
refusal; definition
A. It is unlawful for a franchisor to
prevent a franchisee from selling or transferring a franchise, all or
substantially all of the assets of the franchise business or a controlling or
noncontrolling interest in the franchise business to another person if the
person is qualified under the franchisor's then-existing standards for the
approval of new or renewing franchisees. The franchisor shall
disclose these standards to the franchisee pursuant to section 44-8061,
and the standard shall be consistently applied to similarly situated
franchisees operating within the franchise brand, and the franchisee and the
buyer, transferee or assignee shall comply with the transfer conditions
specified in the franchise agreement.� This subsection does not require a franchisor
to disclose the franchisor's confidential information.
B. Notwithstanding subsection A of
this section, a franchisee does not have the right to sell, transfer or assign
the franchise all or substantially all of the assets of the franchise business
or a controlling or noncontrolling interest in the franchise business without
the written consent of the franchisor.� The consent may be withheld only if the
buyer, transferee or assignee does not meet the standards for new or renewing
franchisees described in subsection A of this section or the franchisee and the
buyer, transferee or assignee do not comply with the transfer conditions
specified in the franchise agreement.
C. This section does not prohibit a
franchisor from exercising the contractual right of first refusal to purchase a
franchise, all or substantially all of the assets of a franchise business or a
controlling or noncontrolling interest in a franchise business after receiving
a bona fide offer from a proposed purchaser to purchase the franchise, assets
or interest. A franchisor exercising the contractual right of first
refusal shall offer the seller payment that is at least equal to the value
offered in the bona fide offer.
D. For the purposes of this section,
"franchise business" includes a legal entity that is a party to a
franchise agreement. END_STATUTE
START_STATUTE44-8061. Notice of franchisee's intent to sell, assign or transfer;
requirements; notice of approval or disapproval; franchisor's right of first
refusal; definition
A. Before the sale, assignment or
transfer of a franchise, all or substantially all of the assets of a franchise
business or a controlling or noncontrolling interest in the franchise business,
the franchisee shall notify the franchisor of the franchisee's intent to sell,
assign or transfer the franchise, all or substantially all of the assets of the
franchise business or the controlling or noncontrolling interest in the
franchise business.� The notice must be in writing, be delivered to the franchisor
by business courier or by certified mail and include all of the following:
1. The proposed transferee's name and
address.
2. A copy of all agreements related
to the sale, assignment or transfer of the franchise, the assets of the
franchise business or the interest in the franchise business.
3. The proposed transferee's
application for approval to become the successor franchisee. The
application shall include all forms, financial disclosures and related
information that the franchisor uses in reviewing prospective new franchisees,
if those forms are readily made available to the existing
franchisee. If the forms are not readily available, the franchisee
shall request and the franchisor shall deliver the forms to the franchisee by
business courier or certified mail within fifteen calendar days. As
soon as practicable after receiving the proposed transferee's application, the
franchisor shall notify in writing the franchisee and the proposed transferee
of any additional information or documentation necessary to complete the
transfer application. If the franchisor's then-existing
standards for the approval of new or renewing franchisees are not readily
available to the franchisee when the franchisee notifies the franchisor of the
franchisee's intent to sell, transfer or assign the franchise, the assets of
the franchise business or the controlling or noncontrolling interest in the
franchise business, the franchisor shall communicate the standards to the
franchisee within forty-five calendar days.� This subsection does not require a
franchisor to disclose the franchisor's confidential information.
B. Within ninety days after receiving
all of the necessary information and documentation required pursuant to
subsection A of this section or as specified by written agreement between the
franchisor and the franchisee, the franchisor shall notify the franchisee of
the approval or disapproval of the proposed sale, assignment or transfer.� The
notice shall be in writing and shall be delivered to the franchisee by business
courier or certified mail. A proposed sale, assignment or transfer
is deemed approved unless disapproved by the franchisor in the manner provided
by this section. If the proposed sale, assignment or transfer is
disapproved, the franchisor must include in the notice of disapproval a
statement stating the reasons for the disapproval.
C. In any action in which the
franchisor's disapproval of a sale, assignment or transfer pursuant to this
section is an issue, the reasonableness of the franchisor's decision is a
question of fact requiring consideration of all existing circumstances.� For
the purposes of this subsection, the finder of fact may be an arbitrator
specified in the franchise agreement. This subsection does not
prohibit summary judgment when the reasonableness of transfer approval or
disapproval can be decided as a matter of law.
D. This section does not do either of
the following:
1. Require a franchisor to exercise a
contractual right of first refusal.
2. Prohibit a franchisor from
exercising the contractual right of first refusal to purchase a franchise, all
or substantially all of the assets of a franchise business or a controlling or
noncontrolling interest in a franchise business after receiving a bona fide
offer from a proposed purchaser to purchase the franchise, assets or interest.�
Any franchisor exercising the contractual right of first refusal shall offer
the seller payment that is at least equal to the value offered in the bona fide
offer.
E. For the purposes of this section,
"franchise business" includes a legal entity that is a party to a
franchise agreement. END_STATUTE
START_STATUTE44-8062. Notices of termination or nonrenewal
All notices of termination or nonrenewal
required by this chapter must:
1. Be in writing.
2. Be posted by certified mail or
personally delivered to the franchisee.
3. Contain a statement of intent to
terminate or not renew the franchise that contains both:
(a) The reasons
for the termination or nonrenewal.
(b) The
effective date of the termination or nonrenewal or expiration. END_STATUTE
START_STATUTE44-8063. Remedies; offset of prior recovery; violation of federal rule
A. If a franchisor terminates or
fails to renew a franchisee in violation of this chapter, the franchisee is
entitled to receive from the franchisor the fair market value of the franchised
business and franchise assets and any other damages caused by the violation.
B. A court may grant preliminary and
permanent injunctions for a violation or threatened violation of this chapter.
C. The franchisor may offset against
any remedies made pursuant to subsection A of this Section any prior recovery
by the franchisee and any sums that the franchisee owes the franchisor or its
subsidiaries pursuant to the franchise or any ancillary agreement. END_STATUTE
START_STATUTE44-8064. Rights of association
A franchisor, directly or indirectly, through
any officer, agent or employee, may not restrict or inhibit the right of
franchisees to join a trade association or to prohibit the right of free
association among franchisees for any lawful purposes.� A violation of this
section is not a crime. END_STATUTE
START_STATUTE44-8065. Venue restriction; void
A provision in a franchise agreement restricting
venue to a forum outside this state is void with respect to any claim arising
under or relating to a franchise agreement involving a franchise business
operating within this state unless both parties agree to a venue change. END_STATUTE
START_STATUTE44-8066. Applicability
A. Except as provided in subsection B
of this section, this chapter applies only to:
1. Franchises granted or renewed on
or after January 1, 2027 or to franchises of an indefinite duration that may be
terminated by the franchisee or franchisor without cause.
2. Franchise agreements entered into
or renewed on or after January 1, 2027 or to franchises of an indefinite
duration that may be terminated by the franchisee or franchisor without cause.
B. This chapter does not apply to
either of the following:
1. A franchise agreement amended
after January 1, 2027 if the amendment to the franchise agreement was initiated
by the franchisee and did not substantially and adversely impact the
franchisee's rights, benefits, privileges, duties, obligations or
responsibilities under the franchise agreement.
2. A lodging franchise. END_STATUTE
START_STATUTE44-8067. Modifications
A franchisor may not modify a franchise
agreement or require a general release in exchange for any assistance related
to a declared state or federal emergency. END_STATUTE
Sec. 2. Severability
If a provision of this act or its
application to any person or circumstance is held invalid, the invalidity does
not affect other provisions or applications of the act that can be given effect
without the invalid provision or application, and to this end the provisions of
this act are severable.
Sec. 3. Short title
This act may be cited as the
"Franchise Investment Protection Act".