New Franchise Law Helps B.C. Businesses

Are you thinking about getting in on the booming franchise market and becoming a franchisee yourself? You’re not alone. Many of Canada’s best-known brands operate through a franchise network and offer profitable franchise opportunities – Tim Horton’s, Midas and McDonalds are just some.

For a business owner/operator, investing in a well-known franchise offers many advantages. You get the benefit of a recognized brand name and a well-established system of operation and best practices, typically along with some training by the franchisor. And you’ll get a territory assigned to secure a market for your location.

One big upside – the chance that your new small franchise business will fail is much lower than that of other new businesses (which often fail in their first year or two).

But there are many things you should consider before you take the leap.

The franchisor will insist you sign (and carry out) its standard franchise agreement. This is typically weighted in favour of the franchisor. You’ll have to pay a franchise fee up front, along with ongoing royalty payments to the franchisor. And you’ll have to follow the restrictions and operating procedures put in place by the franchisor (which aim to give customers the same reliable experience at all of its franchise outlets).

So before you pony up your money, you’ll obviously want to do your due diligence and investigate things thoroughly. Checking out your proposed location and occupancy arrangements (e.g. lease terms), studying the market for your franchise business in the territory it covers, and figuring out your estimated costs and profitability are just a few key things.

The new B.C. Franchises Act that came into effect February 1, 2017, and its regulations, are very helpful to you, as a franchisee. They’re designed to get you certain critical information from your franchisor – the franchisor must now give you a disclosure document setting out all material facts called for by the new rules. The new law gives you a reasonable period of time, 14 days from receipt of this material, to digest and evaluate that information (probably best done with the help of your lawyer), before you sign the franchise agreement and commit to pay the initial franchise fee.

If you change your mind during this 14-day “cooling-off” period, the new law allows you to back away from the deal and get back any up-front deposit money you’ve paid to the franchisor. It also gives you new additional rights in certain circumstances (for example, if the information the franchisor gave you turns out be false or seriously misleading). And if, for some reason, the franchisor doesn’t give you the disclosure statement at all, you can back out of your franchise arrangement in the first two years after entering into the franchise agreement, get compensated for your losses and get your money back.

See your lawyer if you’re thinking of starting a business in B.C. as a franchisee.

Written by Janice and George Mucalov, LL.B.s with contribution by COBBETT & COTTON. This column provides information only and must not be relied on for legal advice. Please contact COBBETT & COTTON for legal advice concerning your particular case. Names of the parties in reported cases have been changed or removed to protect their identity. Lawyer Janice Mucalov is an award-winning legal writer. “You and the Law” is a registered trade-mark. ©Janice and George Mucalov.

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