15 U.S.C. § 2802 : US Code - Section 2802: Franchise relationship

Search 15 U.S.C. § 2802 : US Code - Section 2802: Franchise relationship

(a) General prohibition against termination or nonrenewal
Except as provided in subsection (b) of this section and section
2803 of this title, no franchisor engaged in the sale, consignment,
or distribution of motor fuel in commerce may -
(1) terminate any franchise (entered into or renewed on or
after June 19, 1978) prior to the conclusion of the term, or the
expiration date, stated in the franchise; or
(2) fail to renew any franchise relationship (without regard to
the date on which the relevant franchise was entered into or
renewed).
(b) Precondition and grounds for termination or nonrenewal
(1) Any franchisor may terminate any franchise (entered into or
renewed on or after June 19, 1978) or may fail to renew any
franchise relationship, if -
(A) the notification requirements of section 2804 of this title
are met; and
(B) such termination is based upon a ground described in
paragraph (2) or such nonrenewal is based upon a ground described
in paragraph (2) or (3).
(2) For purposes of this subsection, the following are grounds
for termination of a franchise or nonrenewal of a franchise
relationship:
(A) A failure by the franchisee to comply with any provision of
the franchise, which provision is both reasonable and of material
significance to the franchise relationship, if the franchisor
first acquired actual or constructive knowledge of such failure -

(i) not more than 120 days prior to the date on which
notification of termination or nonrenewal is given, if
notification is given pursuant to section 2804(a) of this
title; or
(ii) not more than 60 days prior to the date on which
notification of termination or nonrenewal is given, if less
than 90 days notification is given pursuant to section
2804(b)(1) of this title.
(B) A failure by the franchisee to exert good faith efforts to
carry out the provisions of the franchise, if -
(i) the franchisee was apprised by the franchisor in writing
of such failure and was afforded a reasonable opportunity to
exert good faith efforts to carry out such provisions; and
(ii) such failure thereafter continued within the period
which began not more than 180 days before the date notification
of termination or nonrenewal was given pursuant to section 2804
of this title.
(C) The occurrence of an event which is relevant to the
franchise relationship and as a result of which termination of
the franchise or nonrenewal of the franchise relationship is
reasonable, if such event occurs during the period the franchise
is in effect and the franchisor first acquired actual or
constructive knowledge of such occurrence -
(i) not more than 120 days prior to the date on which
notification of termination or nonrenewal is given, if
notification is given pursuant to section 2804(a) of this
title; or
(ii) not more than 60 days prior to the date on which
notification of termination or nonrenewal is given, if less
than 90 days notification is given pursuant to section
2804(b)(1) of this title.
(D) An agreement, in writing, between the franchisor and the
franchisee to terminate the franchise or not to renew the
franchise relationship, if -
(i) such agreement is entered into not more than 180 days
prior to the date of such termination or, in the case of
nonrenewal, not more than 180 days prior to the conclusion of
the term, or the expiration date, stated in the franchise;
(ii) the franchisee is promptly provided with a copy of such
agreement, together with the summary statement described in
section 2804(d) of this title; and
(iii) within 7 days after the date on which the franchisee is
provided a copy of such agreement, the franchisee has not
posted by certified mail a written notice to the franchisor
repudiating such agreement.
(E) In the case of any franchise entered into prior to June 19,
1978, and in the case of any franchise entered into or renewed on
or after such date (the term of which is 3 years or longer, or
with respect to which the franchisee was offered a term of 3
years or longer), a determination made by the franchisor in good
faith and in the normal course of business to withdraw from the
marketing of motor fuel through retail outlets in the relevant
geographic market area in which the marketing premises are
located, if -
(i) such determination -
(I) was made after the date such franchise was entered into
or renewed, and
(II) was based upon the occurrence of changes in relevant
facts and circumstances after such date;
(ii) the termination or nonrenewal is not for the purpose of
converting the premises, which are the subject of the
franchise, to operation by employees or agents of the
franchisor for such franchisor's own account; and
(iii) in the case of leased marketing premises -
(I) the franchisor, during the 180-day period after
notification was given pursuant to section 2804 of this
title, either made a bona fide offer to sell, transfer, or
assign to the franchisee such franchisor's interests in such
premises, or, if applicable, offered the franchisee a right
of first refusal of at least 45 days duration of an offer,
made by another, to purchase such franchisor's interest in
such premises; or
(II) in the case of the sale, transfer, or assignment to
another person of the franchisor's interest in such premises
in connection with the sale, transfer, or assignment to such
other person of the franchisor's interest in one or more
other marketing premises, if such other person offers, in
good faith, a franchise to the franchisee on terms and
conditions which are not discriminatory to the franchisee as
compared to franchises then currently being offered by such
other person or franchises then in effect and with respect to
which such other person is the franchisor.
(3) For purposes of this subsection, the following are grounds
for nonrenewal of a franchise relationship:
(A) The failure of the franchisor and the franchisee to agree
to changes or additions to the provisions of the franchise, if -
(i) such changes or additions are the result of
determinations made by the franchisor in good faith and in the
normal course of business; and
(ii) such failure is not the result of the franchisor's
insistence upon such changes or additions for the purpose of
converting the leased marketing premises to operation by
employees or agents of the franchisor for the benefit of the
franchisor or otherwise preventing the renewal of the franchise
relationship.
(B) The receipt of numerous bona fide customer complaints by
the franchisor concerning the franchisee's operation of the
marketing premises, if -
(i) the franchisee was promptly apprised of the existence and
nature of such complaints following receipt of such complaints
by the franchisor; and
(ii) if such complaints related to the condition of such
premises or to the conduct of any employee of such franchisee,
the franchisee did not promptly take action to cure or correct
the basis of such complaints.
(C) A failure by the franchisee to operate the marketing
premises in a clean, safe, and healthful manner, if the
franchisee failed to do so on two or more previous occasions and
the franchisor notified the franchisee of such failures.
(D) In the case of any franchise entered into prior to June 19,
1978, (the unexpired term of which, on such date, is 3 years or
longer) and, in the case of any franchise entered into or renewed
on or after such date (the term of which was 3 years or longer,
or with respect to which the franchisee was offered a term of 3
years or longer), a determination made by the franchisor in good
faith and in the normal course of business, if -
(i) such determination is -
(I) to convert the leased marketing premises to a use other
than the sale or distribution of motor fuel,
(II) to materially alter, add to, or replace such premises,
(III) to sell such premises, or
(IV) that renewal of the franchise relationship is likely
to be uneconomical to the franchisor despite any reasonable
changes or reasonable additions to the provisions of the
franchise which may be acceptable to the franchisee;
(ii) with respect to a determination referred to in subclause
(II) or (IV), such determination is not made for the purpose of
converting the leased marketing premises to operation by
employees or agents of the franchisor for such franchisor's own
account; and
(iii) in the case of leased marketing premises such
franchisor, during the 90-day period after notification was
given pursuant to section 2804 of this title, either -
(I) made a bona fide offer to sell, transfer, or assign to
the franchisee such franchisor's interests in such premises;
or
(II) if applicable, offered the franchisee a right of first
refusal of at least 45-days duration of an offer, made by
another, to purchase such franchisor's interest in such
premises.
(c) Definition
As used in subsection (b)(2)(C) of this section, the term "an
event which is relevant to the franchise relationship and as a
result of which termination of the franchise or nonrenewal of the
franchise relationship is reasonable" includes events such as -
(1) fraud or criminal misconduct by the franchisee relevant to
the operation of the marketing premises;
(2) declaration of bankruptcy or judicial determination of
insolvency of the franchisee;
(3) continuing severe physical or mental disability of the
franchisee of at least 3 months duration which renders the
franchisee unable to provide for the continued proper operation
of the marketing premises;
(4) loss of the franchisor's right to grant possession of the
leased marketing premises through expiration of an underlying
lease, if -
(A) the franchisee was notified in writing, prior to the
commencement of the term of the then existing franchise -
(i) of the duration of the underlying lease; and
(ii) of the fact that such underlying lease might expire
and not be renewed during the term of such franchise (in the
case of termination) or at the end of such term (in the case
of nonrenewal);
(B) during the 90-day period after notification was given
pursuant to section 2804 of this title, the franchisor offers
to assign to the franchisee any option to extend the underlying
lease or option to purchase the marketing premises that is held
by the franchisor, except that the franchisor may condition the
assignment upon receipt by the franchisor of -
(i) an unconditional release executed by both the landowner
and the franchisee releasing the franchisor from any and all
liability accruing after the date of the assignment for -
(I) financial obligations under the option (or the
resulting extended lease or purchase agreement);
(II) environmental contamination to (or originating from)
the marketing premises; or
(III) the operation or condition of the marketing
premises; and
(ii) an instrument executed by both the landowner and the
franchisee that ensures the franchisor and the contractors of
the franchisor reasonable access to the marketing premises
for the purpose of testing for and remediating any
environmental contamination that may be present at the
premises; and
(C) in a situation in which the franchisee acquires
possession of the leased marketing premises effective
immediately after the loss of the right of the franchisor to
grant possession (through an assignment pursuant to
subparagraph (B) or by obtaining a new lease or purchasing the
marketing premises from the landowner), the franchisor (if
requested in writing by the franchisee not later than 30 days
after notification was given pursuant to section 2804 of this
title), during the 90-day period after notification was given
pursuant to section 2804 of this title -
(i) made a bona fide offer to sell, transfer, or assign to
the franchisee the interest of the franchisor in any
improvements or equipment located on the premises; or
(ii) if applicable, offered the franchisee a right of first
refusal (for at least 45 days) of an offer, made by another
person, to purchase the interest of the franchisor in the
improvements and equipment.
(5) condemnation or other taking, in whole or in part, of the
marketing premises pursuant to the power of eminent domain;
(6) loss of the franchisor's right to grant the right to use
the trademark which is the subject of the franchise, unless such
loss was due to trademark abuse, violation of Federal or State
law, or other fault or negligence of the franchisor, which such
abuse, violation, or other fault or negligence is related to
action taken in bad faith by the franchisor;
(7) destruction (other than by the franchisor) of all or a
substantial part of the marketing premises;
(8) failure by the franchisee to pay to the franchisor in a
timely manner when due all sums to which the franchisor is
legally entitled;
(9) failure by the franchisee to operate the marketing premises
for -
(A) 7 consecutive days, or
(B) such lesser period which under the facts and
circumstances constitutes an unreasonable period of time;
(10) willful adulteration, mislabeling or misbranding of motor
fuels or other trademark violations by the franchisee;
(11) knowing failure of the franchisee to comply with Federal,
State, or local laws or regulations relevant to the operation of
the marketing premises; and
(12) conviction of the franchisee of any felony involving moral
turpitude.
(d) Compensation, etc., for franchisee upon condemnation or
destruction of marketing premises
In the case of any termination of a franchise (entered into or
renewed on or after June 19, 1978), or in the case of any
nonrenewal of a franchise relationship (without regard to the date
on which such franchise relationship was entered into or renewed) -

(1) if such termination or nonrenewal is based upon an event
described in subsection (c)(5) of this section, the franchisor
shall fairly apportion between the franchisor and the franchisee
compensation, if any, received by the franchisor based upon any
loss of business opportunity or good will; and
(2) if such termination or nonrenewal is based upon an event
described in subsection (c)(7) of this section and the leased
marketing premises are subsequently rebuilt or replaced by the
franchisor and operated under a franchise, the franchisor shall,
within a reasonable period of time, grant to the franchisee a
right of first refusal of the franchise under which such premises
are to be operated.