- A franchise resale is a grant under the BC Franchises Act, so disclosure rules can apply to you as the buyer.
- A prospective franchisee must receive the disclosure document at least 14 days before signing or paying.
- If disclosure is late or deficient you may be able to rescind within 60 days, and if none is given, within 2 years.
Buying an existing franchise location can feel safer than starting from scratch. The business has customers, staff and a track record. But you are buying into two relationships at once: the one with the current franchisee, and the one with the franchisor, who usually has a say in the transfer.
This article explains the typical steps and your rights under the British Columbia Franchises Act. Your franchise agreement and the purchase terms decide most details, so have a lawyer review them before you sign or pay anything.
This article covers the law of British Columbia.
Why a resale still counts under the Franchises Act
The Act defines a grant to include the disposition of the franchise or an interest in it, including shares in the corporation that owns it. That means a resale is a grant, even though you are buying from another franchisee and not from the franchisor.
Who must give disclosure depends on how the sale is arranged. 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 the grant, or a fee not above reasonable processing costs, does not by itself mean the grant went through the franchisor. If the franchisor is heavily involved in the sale, ask a lawyer whether disclosure should be given.
Disclosure: what you should receive and when
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. If something material changes, a statement of material change must be delivered as soon as practicable after the change and before signing or paying.
Use that time. Read the document with your lawyer and accountant, compare it to what the seller told you, and ask questions about anything that does not match. Do not sign or hand over a deposit just because the seller wants to move quickly.
Beyond the disclosure document, it is sensible to ask for other paperwork so you can check the business for yourself. The list below is a practical starting point, not a statement of what the law requires anyone to hand over.
- Disclosure document, and any statement of material change
- The current franchise agreement and any amendments
- Ask the seller for financial statements and sales records for the location
- Ask to see the lease, and find out whether the landlord's consent is needed
- Ask what renovations, training and fees the franchisor may expect, and compare the answers to your franchise agreement
- Any equipment leases, loans or liens against the location
Franchisor approval and transfer conditions
Most franchise agreements say the franchisee cannot sell without the franchisor's approval. The agreement usually sets out transfer fees, training, new agreement terms, and whether the franchisor can require upgrades. The Act does not have a stand-alone transfer section, so the agreement itself is where you look.
There is a limit on how approval is used. Every franchise agreement imposes a duty of fair dealing on each party, including acting in good faith and according to reasonable commercial standards when exercising a right, such as approving a transfer. That does not mean approval is automatic, but it does mean a franchisor should not use the right arbitrarily.
Build approval into your purchase agreement as a condition. If the franchisor does not approve, you should have a clear way to end the deal and get your deposit back. Also check the lease, because landlord consent may be needed. The Commercial Tenancy Act does not set a general rule on when a landlord may refuse consent to an assignment, so the lease terms and case law decide.
If disclosure is late or missing
A franchisee may rescind within 60 days after receiving a disclosure document if it was late or deficient. If no disclosure document was provided, the franchisee may rescind within 2 years of entering the franchise agreement. On rescission the franchisor must refund money, buy back inventory, supplies and equipment, and compensate losses.
A franchisee who suffers a loss from a misrepresentation in the disclosure document, or from a failure to comply with the disclosure rules, also has a right of action for damages, and is conclusively deemed to have relied on the misrepresentation. A person is not liable if the franchisee bought with actual knowledge of the misrepresentation. Rescission and damages are fact-specific, so talk to a lawyer promptly if you think something went wrong.
What to do next
Before you commit, work through these steps in order.
- Ask who is giving disclosure and get the document in writing
- Note the date you receive it and count 14 days before signing or paying
- Have a lawyer review the franchise agreement, transfer terms and lease
- Make franchisor approval and landlord consent conditions of the purchase
- Confirm with an accountant how the purchase will be structured and taxed
- Keep copies of everything you were told and given
Frequently asked questions
Do I get a disclosure document when buying a resale?
Often yes, but it depends on how the sale is arranged. A franchisee selling for its own account is exempt only if the grant is not effected by or through the franchisor. A lawyer can tell you who should give it in your situation.
Can the franchisor refuse to approve the transfer?
The franchise agreement usually gives the franchisor an approval right. It must be used in good faith and according to reasonable commercial standards. What counts as reasonable depends on the facts.
How long do I have to cancel if disclosure was late?
A franchisee may rescind within 60 days after receiving a disclosure document if it was late or deficient. If none was provided, the period is 2 years from entering the franchise agreement.
Do I need landlord consent?
Often. Whether the landlord can refuse depends on the lease wording and case law, because the Commercial Tenancy Act does not set a general rule on refusing consent. Check the lease before you sign.
Sources
- Commercial Tenancy Act, RSBC 1996, c. 57 — bclaws.gov.bc.ca
- 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.
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