Franchise termination

A buyer of a franchise resale should read closely the termination terms of the agreement it will operate under. Ontario’s regulation under the Arthur Wishart Act requires the disclosure document to describe all restrictions or conditions in the agreement related to termination or renewal. Alberta’s Franchises Regulation requires the document to say whether such provisions exist and where in the contract they are.

The duty of fair dealing

The Ontario (s.3), British Columbia (s.3), Alberta (s.7) and Manitoba (s.3) franchise statutes each say every franchise agreement imposes on each party a duty of fair dealing in its performance and enforcement. The Ontario, British Columbia and Manitoba Acts add that the duty includes acting in good faith and in accordance with reasonable commercial standards, and give a party a right of action for damages against another party who breaches it. British Columbia’s extends the duty to the exercise of a right under the agreement. Check the statute, if any, of the province where the franchise operates.

What to ask

• Which events let the franchisor end the agreement, and whether notice comes first.
• Whether the agreement gives time to fix a breach before termination.
• What happens to the premises, equipment and lease if it ends.

The answer on whether a franchisor can take back a location covers the related buyback question.