Business Law

Opinion No. 72 / 15F

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State of California Department of Corporations

Brian R. Van Camp, Commissioner 
In reply refer to: File No. _____

This letter is not an Interpretive Opinion for the reasons stated below.

Mr. George M. Henzie
Attorney at Law
Belcher, Henzie & Biegenzahn
510 South Spring Street
Los Angeles, CA 90013

Dear Mr. Henzie:

The request for an interpretive opinion contained in your letter dated January 6, 1972, as supplemented by your letter dated January 11, 1972, has been considered by the Commissioner. Your letters raise the question whether changes in the licensing agreements between Hydrex Pest Control Co. , Inc. (“Hydrex”) and persons referred to hereinbelow as licensees are subject to the registration requirement of the Franchise Investment Law.

You have represented that all of the licensing agreements have been in effect for many years and were entered into prior to the effective date of the Franchise Investment Law. You have also stated that you are satisfied and therefore we shall assume that the agreements are “franchises” within the definition of Section 31005 of the Law.

You have further represented that licensees periodically request changes in their licensing agreements with respect to the fee schedule which is scaled upon gross sales, as well as other provisions of the agreements. No request for a change is now pending, but one is expected pertaining to fees.

Section 31110 of the Franchise Investment Law imposes a registration requirement on the offer or sale of any franchise in this state. If a franchise previously granted is to be changed in relation to its material terms with the result that, in effect, a new franchise is created, the registration requirement of Section 31110, in our opinion, is applicable.

Whether the change is a material change for the purpose of the application of Section 31110, in the opinion of the Commissioner, must be determined from case to case with a view to the effect which the change has on the rights and obligations of the parties to the agreement and considering their ability to evaluate the consequences of the change. Normally; a change of the parties to the agreement or of the location at which the franchisee’s business is operated, is one of the material changes activating the registration requirement. A change in the fee schedule, depending on the circumstances, also may well be so significant as to call for registration of the changed agreement.

Lacking details with respect to changes contemplated in the licensing agreements of Hydrex, we express no opinion as to whether these particular changes are subject to the registration requirement of Section 31110. Inasmuch as interpretive opinions are issued for the principal purpose of providing a procedure by which members of the public can protect themselves against liability for acts done or omitted in good faith in reliance upon the administrative determination under the Corporate Securities Law made in the opinion, and since there can be no such reliance where the Commissioner asserts jurisdiction with respect to a particular situation or determines that a legal requirement is applicable, advice to that effect, as contained in this letter, does not constitute an interpretive opinion.

Dated: San Francisco, California
April 18, 1972

By order of 
Commissioner of Corporations

By __________________ 
Assistant Commissioner
Office of Policy

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