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BC Franchise Legislation Protects Franchisees

DBM Law Blog

On February 1, 2017, BC became the 6th province in Canada to enact franchise legislation.  The Act applies to the following franchise agreements when a franchisee is operating wholly or partly in British Columbia:

  • new franchise agreements entered into on or after February 1, 2017;
  • existing franchise agreements that are renewed or extended on or after February 1, 2017; and
  • franchise agreements entered into before February 1, 2017 with respect to certain sections of the Act.

The Act imposes a duty of fair dealing on franchisors and franchisees regarding the performance and enforcement of the franchise agreement, and sets out remedies in the case of a breach. This duty requires that the parties act in good faith and in accordance with reasonable commercial standards.

In addition, franchisors must provide a prospective franchisee with a franchise disclosure document (the Act and regulation provide a long list of rules regarding the content of the disclosure document) regarding at least 14 days before the earlier of: (1) entering into a franchise agreement or any other agreement relating to the franchise, or (2) paying any consideration relating to the franchise.

If there are any material changes to the franchise system during the pre-franchise disclosure period, the franchisor must also deliver a statement of material change to a prospective franchisee.

The Franchises Act is consumer legislation and protects prospective or existing franchisee, by providing them with a right of rescission.  The right of rescission essentially allows prospective or existing franchisee to cancel the entire franchise transaction and end the franchise relationship without penalty or obligation within two time periods:

  1. Within 60 days after receiving a disclosure document if the franchisor failed to provide the disclosure document or a statement of material change within the required time, or the disclosure document’s contents did not meet the Act’s requirements; and
  2. Within 2 years after entering into the franchise agreement, if a franchisor never provided a disclosure agreement.

There are specific rules as to how a franchisee must “rescind” the franchise agreement so obtaining legal advice is imperative.  Once the franchise agreement is properly rescinded, the franchisor must, within 60 days:

  1. refund the franchisee any money received from or on behalf of the franchisee, other than money for inventory, supplies or equipment,
  2. purchase from the franchise any inventory that the franchisee had purchased under the franchise agreement and remaining on the effective date of rescission, at a price equal to the purchase price paid by the franchise,
  3. purchase from the franchise any supplies and equipment that the franchisee had purchased under the franchise agreement at a price equal to the purchase price paid by the franchisee, and
  4. compensate the franchisee for any losses that the franchisee incurred in acquiring, setting up and operating the franchise, less the amount set out above.

If you would like more information regarding the possible termination of a franchisee agreement, or would like to have a franchise agreement reviewed, please call Sharene Orstad at 604-LAWYERS.



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