B.C.'s Franchise Act Makes It the Best Place to Sell or Buy a Franchise

Why B.C.'s Franchise Law Is Good for Both Franchisors & Franchisees

Home Depot franchise storefront
Image (c) Bruce Leighty/ Getty Images

Buying a franchise can be the best way to quickly achieve business success. That’s why buying into a franchise is such a popular way to start a business. When you buy a franchise, you’re not just buying a name; you’re buying a proven system and the expertise to run that system that will make your new business a guaranteed winner.

But that’s not necessarily true – what you might actually be buying is a proven way to see your money and your dream of success drain away with the added bonus of being embroiled in costly ligation for years.

Because if things go wrong, franchisees in Canada don’t necessarily have the legal protections and remedies available that franchisees have in other places (such as the United States).

The passing of Bill 38, The Franchises Act of B.C. (October 2015) makes British Columbia the best place in Canada to buy a franchise.

Why is B.C. the Best Place to Buy a Franchise in Canada?

The new franchise law in this province provides the best protection for franchisees and will make life easier for franchisors as well. Modeled after legislation currently in effect in five other provinces, The Franchises Act of B.C. is an improvement on the Arthur Wishart Act (Franchise Disclosure) of Ontario.

Background

Ontario passed the Arthur Wishart Act (Franchise Disclosure) in 2000.

Until that point, Canada had been a franchising wild west. Following the lead of the United States where franchising legislation has been in place for decades in many states, Alberta introduced franchise legislation in the 1970s which were modified in the 1990s to insist upon franchisors presenting franchisees with a disclosure document.

(See the Alberta Franchises Act.)

PEI, New Brunswick, and Manitoba all have franchise legislation in place that is modeled on Ontario’s Arthur Wishart Act (Franchise Disclosure).

As of writing, Saskatchewan, Nova Scotia, Quebec and Newfoundland have no franchise legislation in place.

Both Ontario’s Wishart Act and the Franchises Act of B.C.:

  • impose a duty of fair dealing on both parties to a franchise agreement, described as “the duty to act in good faith and in accordance with reasonable commercial standards”.​
  • give franchisees the right to meet with other franchisees, including the right to “form or join an organization of franchisees”.
  • make franchisors providing a Franchise Disclosure Document (FDD) a requirement  and lay out what has to be in that FDD;
  • give franchisees the right to rescind a franchise agreement (under certain circumstances).
  • give franchisees the right to sue for damages of loss (under certain circumstances).

But B.C.’s Franchise Act makes some improvements.

Let’s have a look at some of the major issues from the point of view of both franchisees and franchisors. (Please note that I am summarizing in the points below; if you are in the process of selling or buying a franchise, you will want to read the original legislation linked to in this article and/or consult a lawyer who practices franchise law.)

What Franchisees Will Like About B.C.’s Franchises Act

The Franchise Disclosure Document (FDD)  is clarified. What does the franchisor have to tell the prospective franchisee? B.C.’s Bill 38 lays it out (as the Wishart Act does).  Besides presenting all the material facts an FDD also has to contain:

  • prescribed financial statements;
  • copies of all proposed franchise agreements, and other agreements relating to the franchise, to be signed by a prospective franchisee;
  • prescribed statements that have the purpose of assisting a prospective franchisee to make informed investment decisions;
  • other prescribed information;
  • copies of other prescribed documents.

And if a franchisor doesn’t give the franchisee a complete FDD or doesn’t provide an FDD within the required time (14 days before the signing of the franchise agreement or before any payment of consideration), the franchisee may rescind (void) the franchise agreement, without penalty or obligation.

There is still (as there is in all the provinces that have franchise legislation) a two week cooling off period; the franchise agreement cannot be executed until at least two weeks after the FDD has been delivered to the franchisee, giving him or her the chance to think things over and/or seek legal advice before being bound to the contract.

If a franchisee sues a franchisor for any reason relating to the franchise, B.C.’s franchise act specifies that the litigation has to take place in B.C. (Without this protection, franchisors were free to demand that litigation took place in their court, wherever it happened to be – quite the inconvenience if the franchisor happened to be based in Texas, for instance.)

What Franchisors Will Like About It

The Franchises Act of B.C. accepts substantial compliance with the Franchise Disclosure Document (FDD) rather than insisting on full compliance (as Ontario’s Wishart Act does). So in B.C., a technical error in the FDD won’t invalidate the document as long as it meets the substantial compliance threshold.

FDDs will be able to be delivered electronically.

Unlike in Ontario, points out Tony Wilson,  franchisors will be able to accept refundable deposits and can require prospective franchisees to execute confidentiality agreements prior to the FDD being delivered to the prospect and waiting for the 14-day cooling off period to expire.

The Franchises Act of B.C. is very similar to the franchise legislation already in place in other Canadian provinces so complying with B.C.’s new franchise law’s rules of disclosure should be no big deal.

What About Buying a Franchise in Other Provinces?

Unfortunately, as I point out earlier in this article, you don’t have the same legal rights and remedies in Saskatchewan, Nova Scotia, Quebec and Newfoundland when you buy into a franchise operation.

As with any major purchase, doing as complete a job of due diligence is your best protection from making a poor choice, including interviewing franchisees who have already bought into the franchise. The more research you do, the less chance of regretting your decision later. It’s also an excellent idea to have a lawyer review the FDD and the franchise agreement.