Bona fide wholesale price (franchise fee exclusion)

Buyers meet this when a franchisor requires them to buy inventory or supplies. Alberta’s Franchises Act, s. 1(1)(f), defines a franchise fee as a direct or indirect payment to purchase a franchise or to operate a franchised business, but not a purchase of, or agreement to purchase, a reasonable amount of goods at a reasonable bona fide wholesale price. A reasonable amount of services at a reasonable bona fide price is excluded in the same way. Whether a payment counts matters because paying a franchise fee is one of the two alternatives in the third limb of the Alberta definition of franchise, s. 1(1)(d)(iii)(B).

British Columbia

British Columbia’s Franchises Act works differently. Section 2(3)(g) says the Act does not apply to an arrangement arising out of an agreement for the purchase and sale of a reasonable amount of goods at a reasonable wholesale price, and s. 1(4) says payments made in respect of such a purchase are not counted as payments under the definition of franchise. This entry covers Alberta and British Columbia only; check the rules where the business is.

What to ask

• Which required purchases are from the franchisor or its associate, and how the price is set
• Whether the quantity required is a reasonable amount for running the business
• How the purchases are treated in the disclosure document; see costs and fees in buying a franchise