Franchisor refusal grounds (reasonableness)

A seller meets this term after naming a buyer and hearing that the franchisor will not approve. The grounds the franchisor relies on, and whether the agreement lets it decide freely, shape the options. The answer on what grounds a franchisor can refuse a transfer on covers the common reasons.

What limits a refusal

Ontario’s Arthur Wishart Act imposes a duty of fair dealing on each party in performing and enforcing the agreement, and says it includes acting in good faith and in accordance with reasonable commercial standards. British Columbia’s Franchises Act applies its duty of fair dealing to performing and enforcing the agreement, including in exercising a right under it.

At common law, the Supreme Court of Canada held in Wastech that contractual discretion must be exercised in good faith, which is breached only where it is exercised unreasonably, that is, in a manner not connected to the purposes underlying the discretion. It built on Bhasin, which recognized an organizing principle of good faith. The Canadian Franchise Association says Quebec relies on its Civil Code and court precedents, and lists Alberta, Manitoba, New Brunswick, Prince Edward Island and Saskatchewan as other provinces with franchise disclosure legislation.

What to check

• Whether the agreement says approval cannot be unreasonably withheld, or gives the franchisor sole discretion.
• Whether it lists criteria for approving a buyer.
• Whether the franchisor will give its reasons in writing.