How to buy a car dealership in Prince Edward Island: licences, ownership rules and what transfers

Anyone buying a car dealership in Prince Edward Island is buying a business that the province licenses directly. Prince Edward Island’s Highway Traffic Act says no person may deal in, or keep in stock for sale, a motor vehicle, trailer or semi-trailer without a dealer’s trade licence from the department, and the Registrar of Motor Vehicles administers that licensing. The Act sets out conditions, a security bond, record-keeping duties and grounds for cancellation. What follows covers Prince Edward Island’s Act only. For the national picture, including manufacturer approval for franchised stores, start with the guide to buying a new car dealership in Canada.

Who regulates dealers in Prince Edward Island

Under the Highway Traffic Act, the licence comes from the department, and section 35 says the Registrar issues it to each dealer on payment of the prescribed fee. The Act provides that a licence may be issued subject to conditions the Registrar prescribes and states in the licence, and that each person who holds one must comply with them. It also says the Registrar may refuse to issue a licence to any person. That is a discretion written into the statute, so a buyer should not treat a licence as a formality that follows automatically from signing a purchase agreement.

What the Registrar can ask of an applicant

The Act adds that an applicant for a dealer’s trade licence may be required to submit evidence satisfactory to the Registrar of the applicant’s standing as a dealer in good faith. The Act does not list what that evidence must be, so it is a question for the Registrar. If you are an individual buying through a new company, ask what the Registrar will want to see about the company and about you. Ask early, because the answer can shape the timing of a closing.

The security bond

Prince Edward Island’s Highway Traffic Act requires an applicant for a dealer’s trade licence, and a holder of a subsisting one, to furnish and maintain a security bond. Its purpose is to compensate purchasers for losses from a dealer’s breach of a condition or warranty established by sections 13, 14, 15 and 16 of the Sale of Goods Act, arising out of the purchase of a vehicle. The form and amount are set by regulation, not by the Act. Ask the seller who the surety is, and ask the Registrar whether a new bond must be posted in your name.

What transfers on a sale, and what the Act does not say

The dealer licensing provisions of the Highway Traffic Act, read for this page, do not state what happens to a licence when the business changes hands. They do not say it passes with the shares, and they do not say it ends with an asset sale. Do not assume either. Section 51 lets the Lieutenant Governor in Council make regulations governing the issuing, refusal and cancellation of dealer’s trade licences, so ask the Registrar whether the regulations address a change of owner. Confirm the licence position in writing with the Registrar before closing, and ask your lawyer how the purchase agreement should deal with it. The Act’s record and delivery rules, covered below, apply to whoever operates the dealership.

Cancellation, suspension and the odometer rule

The Registrar may suspend or cancel a dealer’s trade licence for non-compliance with, or any infraction of, the Act or the regulations by the holder. Separately, the Act provides that the licence of a person convicted of an odometer offence under subsection 380(1) of the Criminal Code or subsection 27(1) of the federal Weights and Measures Act is cancelled forthwith and automatically on conviction. The person who held it is then disqualified from holding or obtaining another such licence for five years. Ask the seller to confirm in writing that neither the dealership nor anyone who ran it has such a conviction or any Registrar action.

Records, registrations and fees after closing

The Act requires a person who buys, sells or otherwise deals in motor vehicles to keep a record that lets each vehicle be readily identified, and to send the Registrar a monthly statement of vehicles dealt in on forms the Registrar furnishes. It also provides that no dealer shall deliver a registered vehicle until its registration permit has been transferred on the department’s records to the new owner. The Highway Traffic Act Fees Regulations refer to a Class A dealer’s trade licence issued under the Dealer’s Trade License Regulations, and say no fee is payable by such a dealer for transferring vehicle ownership without a number plate attached. Ask which class the seller holds.

What to ask the seller for

• A copy of the current dealer’s trade licence, including any conditions the Registrar has stated in it.
• Evidence of the security bond: the surety, the term, and whether any claims have been made against it.
• The records the Act requires the dealership to keep, and copies of the monthly statements sent to the Registrar.
• Written confirmation of any Registrar suspension, cancellation or warning, and of any odometer-related conviction.
• A list of vehicles in stock whose registration permits have not yet been transferred, so you know what falls under the delivery rule.

Have a lawyer conduct legal due diligence and draft the purchase agreement; BDC notes that a lawyer can draft the purchase agreement and conduct legal due diligence. After closing, tell the Canada Revenue Agency about the change of owners, officers or administrators, since it states that it must have up-to-date information on those changes. If you are comparing opportunities, see automotive businesses for sale.