Can I be sued by the franchisor for selling without consent?

A franchisor can sue for breach of contract if your agreement requires its consent to a sale and you proceed without it. Ontario’s Arthur Wishart Act (Franchise Disclosure), 2000 contains nothing that excuses a franchisee from a consent requirement. It does protect some rights, and it sets a duty of fair dealing, but the starting point is still what you agreed to.

What the statute does and does not change

Section 3 of the Act makes every franchise agreement carry a duty of fair dealing in its performance and enforcement, owed by each party. The duty includes acting in good faith and in accordance with reasonable commercial standards, and it binds the franchisor too, so ask a franchise lawyer whether it bears on how the franchisor handled your request. Saskatchewan’s Franchise Disclosure Act sets a similar duty and words it to include the exercise of a right under the agreement. It is not a licence for a franchisee to skip the consent step, and the Act does not set out a remedy for doing so.

What a franchisor could point to

The agreement is where a claim would come from. Check whether the transfer clause says consent is required, whether it says the franchisor may not withhold it unreasonably, and whether it allows termination or sets out damages for a transfer made without approval. Check also whether it gives the franchisor a right of first refusal that a sale would have to respect.

Why the buyer is exposed too

A buyer who completes without approval should check what the agreement then lets the franchisor do, such as refusing to recognise the transfer, withholding training or declining to renew. If the franchisor must approve the buyer, consider making the purchase agreement conditional on that approval. Without that condition, both sides should settle what happens if approval never comes.

Steps before you sign with a buyer

• Find the clause that deals with transfers and read the consent wording exactly.
• Ask the franchisor in writing what it needs to see from a buyer.
• Make any purchase agreement conditional on the franchisor’s written approval.
• Have a franchise lawyer review the remedies and termination clauses first.