California Allowing Late Franchise Renewals Amid COVID-19 Crisis

The California Commissioner of Business Oversight (the “Commissioner”) has issued guidance to franchise companies regarding the Department of Business Oversight’s (“DBO”) handling of annual franchise renewal filings. In so doing, California became the third franchise registration state (after Maryland and Virginia) to provide some type of relief for franchisors in light of the COVID-19 crisis.

In a memorandum issued earlier this week, the Commissioner stated:

To facilitate efficient and timely review of securities and franchise applications and notices during this time, the Department is strongly urging that all filings made under the Franchise Investment Law (Corporations Code section 31000 et seq.) and the Corporate Securities Law of 1968 (Corporations Code section 25100 et seq.) be submitted electronically through the Department’s self-service portal, DocQNet
(https://docqnet.dbo.ca.gov/).

For paper filings eligible for automatic effectiveness, the Department requests that filers acknowledge in their transmittal letter a waiver of automatic effectiveness to avoid the issuance of a stop order preventing automatic effectiveness in California and to acknowledge that their application will be made effective on the date designated by Department order.

Additionally, to provide greater flexibility for users, the following procedures are effective immediately:
• The Department will accept documents filed on DocQNet that are signed electronically using e-signature software, such as DocuSign, in which case notarization of signatures will not be required.
• Through June 30, 2020, the Department will waive the additional $225.00 filing fee for franchise renewals that are filed after the franchise registration has lapsed.

Importantly, the Commissioner also stated that “[t]hese temporary accommodations do not change any existing laws or regulations and are subject to change or withdrawal.” (emphasis added).

The practical effect of these changes is that even though franchisors with December 31 fiscal year-ends will be permitted to pay the lower renewal fee for approximately 2.5 more months after their registrations expire on April 19, 2020, the registration period itself will not be extended. As a result, franchisors that have not obtained a renewal of their registrations before that date should stop offering and selling franchises in California.

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