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Ask the Experts: Developing franchise legislation in British Columbia

Law book with wooden judges gavel on table in a courtroom or lawBy Chad Finkelstein
Is it true British Columbia is getting its own provincial franchise legislation?

Chad says:
Barring some unforeseen event, yes. Last year, the British Columbia Law Institute (BCLI) issued a consultation paper seeking input from franchise-sector stakeholders regarding possible franchise laws for the province. This year, BCLI published a report outlining such legislation and submitted it to the provincial government.

If the government enacts this law, as BCLI has recommended, then British Columbia will become the sixth Canadian province—following Alberta, Ontario, Prince Edward Island, New Brunswick and Manitoba—to have franchise legislation.

While it is premature to speculate how quickly the provincial government might adopt BCLI’s recommendation and then draft, finalize and enact legislation, all signs are pointing to a regulated franchise sector for British Columbia in the not-too-distant future. And this is good news for everyone; franchisees will benefit from pre-contractual disclosure and codified rights within the franchise relationship, while franchisors expanding in British Columbia will benefit from working with better-informed franchisees from the outset.

Q: What would British Columbia’s franchise legislation entail?

Chad says:
BCLI has recommended legislation very similar to other provinces’. This is no accident; consistent law across the country would help ensure no province appears ‘business-unfriendly’ or poses a barrier to entry due to outlier status.

One key feature of the proposed legislation relates to disclosure documents, where minor deficiencies would not invalidate an entire document; rather, substantial compliance would be sufficient. This would hopefully limit the number of rescission claims made or threatened on the basis of technical defects in disclosure documents.

Other key features include: permitting the delivery of disclosure documents by e-mail; allowing deposits on franchise fees to be collected before disclosure, provided they are fully refundable; a requirement for all disputes involving British Columbia franchisees to be arbitrated and/or litigated within the province; and a clause that while franchisees’ releases of their rights under franchise law will be unenforceable, those releases will be enforced when granted in the course of a settlement.

Q: If this legislation is enacted, then what will happen to franchise agreements that have been signed in British Columbia in the past?

Chad says:
If enacted, the legislation will apply to franchise agreements entered on or after that date, within the province. These include renewals or extensions of agreements entered prior to the enacting of the legislation. So, a franchise agreement signed before the law comes into force will not automatically be subject to the new legislation, but if that agreement were renewed—or a franchise were transferred from one franchisee to another—then the new requirements would apply, including those for disclosure.

That said, franchisees and franchisors would still have access to common-law rights and remedies, including the duty of fair dealing and good faith and statutory remedies for misrepresentation.

Chad Finkelstein is a partner at Dale & Lessmann LLP in Toronto. For more information, contact him at (416) 369-7883 or via e-mail at cfinkelstein@dalelessmann.com.

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