- The Franchises Act requires the franchisor to give you a disclosure document at least 14 days before you sign or pay.
- Every franchise agreement carries a duty of fair dealing on both parties, including good faith when approving a transfer.
- If disclosure is late, deficient or missing, you may be able to rescind or claim damages, with time limits that start running quickly.
Buying a franchise often means signing a long agreement written by the franchisor, with little room to negotiate. It is fair to ask whether British Columbia law gives you anything to lean on before you commit your money.
The Franchises Act does give buyers several protections. This article walks through the main ones, what happens if they are ignored, and how they apply if you are buying an existing franchise from another franchisee.
This article covers the law of British Columbia.
Disclosure before you sign or pay
A prospective franchisee must receive the disclosure document at least 14 days before the earlier of signing a franchise agreement or a related agreement, or paying any consideration relating to the franchise. The point is to give you time to read the document, check the numbers and get advice before you are committed.
If something changes after you receive the document, a statement of material change must be delivered as soon as practicable after the change, and before you sign or pay. Keep every version you receive, with the date you received it.
The duty of fair dealing
Every franchise agreement imposes a duty of fair dealing on each party. That includes acting in good faith and according to reasonable commercial standards when exercising a right, such as approving a transfer. The duty runs both ways, so it also applies to you.
The Act also says a franchisor must not restrict franchisees from associating with each other. That matters if you want to compare experiences with other franchisees before or after you buy.
Your remedies if disclosure falls short
| Situation | What the Act provides |
|---|---|
| Disclosure document was late or deficient | You may rescind within 60 days after receiving it |
| No disclosure document was provided | You may rescind within 2 years of entering the franchise agreement |
| After rescission | The franchisor must refund money, buy back inventory, supplies and equipment, and compensate losses |
| Misrepresentation in the document, or failure to comply with the disclosure rules | You have a right of action for damages, and you are conclusively deemed to have relied on the misrepresentation |
There is a limit on the damages claim. A person is not liable if the franchisee bought with actual knowledge of the misrepresentation. Whether a particular problem qualifies, and which remedy fits, depends on the facts and is worth discussing with a lawyer early, because the rescission periods are short.
If you are buying a resale franchise
The Act treats the disposition of a franchise, or of an interest in it, as a grant. That includes shares in the corporation that owns the franchise. So a resale is not automatically outside the Act.
There is an exception. A franchisee granting a franchise for its own account is exempt from the disclosure requirement, but only if the grant is not effected by or through the franchisor. A franchisor's right to approve a grant, or a fee that does not exceed reasonable processing costs, does not by itself mean the grant went through the franchisor.
The franchise agreement itself usually sets the franchisor's approval rights, transfer fees and conditions, so read those terms closely. Whether you are owed a disclosure document in a particular resale turns on how the deal is structured and is a question for a lawyer.
What to do next
- Write down the date you received the disclosure document and any updates.
- Do not sign or pay anything until at least 14 days have passed since you received it.
- Ask your lawyer to review the franchise agreement and any related agreements before signing.
- For a resale, ask who is granting the franchise and whether the franchisor is involved in the transfer.
- If you think disclosure was late, incomplete or missing, get advice quickly because the rescission periods are limited.
Frequently asked questions
How long do I have to wait between getting the disclosure document and signing?
The disclosure document must be given to you at least 14 days before you sign a franchise agreement or related agreement, or pay consideration relating to the franchise, whichever comes first. A statement of material change must also reach you before you sign or pay.
Can I cancel the deal if the franchisor never gave me disclosure?
If no disclosure document was provided, you may rescind within 2 years of entering the franchise agreement. The franchisor must then refund money, buy back inventory, supplies and equipment, and compensate losses.
Does the Act apply when I buy from another franchisee?
A franchise resale is a grant under the Act. A franchisee selling for its own account may be exempt, but only if the sale is not effected by or through the franchisor. Because this depends on the structure of the deal, ask a lawyer.
Does the franchisor have to treat me fairly?
Yes. Each party owes a duty of fair dealing, including good faith and reasonable commercial standards when exercising a right such as approving a transfer.
Sources
- Franchises Act, SBC 2015, c. 35 — bclaws.gov.bc.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
This is a buying & selling a business question
Buying or selling a business with us is from $3,358.88, tax included. Third-party fees are extra.