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Limiting Character of Franchises

Reference Number: MTAS-1476
Reviewed Date: 10/12/2022

Changing terms of a franchise. Rights vest in the franchise holder during the life of the franchise. Generally, those rights cannot be impaired or revoked by the municipality [City of Paris v. Paris-Henry County Public Utility District, 340 S.W.2d 865 (Tenn. 1960)]. It is further said in City of Chattanooga v. Tennessee Electric Power Company, 112 S.W.2d 385 (Tenn. 1938), citing 12 R.C.L. 213, 214, that

The grant of a franchise to a public utility company is, according to the weight of authority, a grant of a property right in perpetuity, unless limited in duration by the grant itself, or as a consequence of some limitation imposed by the general law of the state, or by the corporate powers of the municipality making the grant. If there be authority to make the grant, and it contains no limitation or qualification as to duration, the plainest principles of justice and right demand that it shall not be cut down, in the absence of some controlling principle of public policy [At 389-90].

Footnote 3 of James Cable Partners, L.P., v. City of Jamestown, 818 S.W.2d 338 (Tenn. Ct. App. 1992), declares that

Once an ordinance which grants a franchise is accepted and "all conditions imposed instant to the right performed, it ceases to be a mere license and becomes a valid contract, and constitutes a vested right." 12 McQuillin, Municipal Corporations § 34.06. This contract once established has the same status and effect as any other contract enforceable under the law [36 Am.Jur.2d Franchises § 6 (1968)].

The contractual nature of franchises severely limits the right of municipalities to charge franchise fees where there is no record in the initial or subsequent line of franchises that provide for such fees.