UTGB Vol 5.pdf - Robson Hall Faculty of Law

120 Underneath the Golden Boy
if the franchisor unreasonably rejects all potential transferees. As such, there is
no reason to include a provision requiring that a franchisor not act capriciously
in assessing a transfer when the duty of fair dealing already imposes such a duty.
Although Iowa boasts an extensive transfer provision, detailing the process in
full, it lacks the extensive duty of good faith demanding such a duty in the
exercise of rights under the agreement. Thus, whereas Iowa needs transfer
provisions recause of the limited duty of good faith, once it adopts the more
extensive duty, Manitoba will not. Consequently, Manitoba should not adopt
transfer provisions.
iv.Sale of Franchise by Franchisee
The issue under this heading arises out of the following series of events.
Typically, if a franchisee sells his franchise and assigns that agreement and/or
sublease to the purchaser, the original franchisee remains liable for all
obligations contained in the agreements. This is a typical provision of
commercial leases. However, some agreements contain further obligations,
providing that if the purchaser subsequently renews the agreements for another
term, the original franchisee continues to be liable for all of the purchaser's
obligations under the renewed agreements, despite having had no input into
their terms. It was suggested to the Manitoba Law Reform Commission that
franchise legislation provide that, in this situation, the obligations of the
franchisee should not extend beyond the terms of the original agreements and
any renewals signed by that franchisee. 127
In order to understand this issue better, it is necessary to consider the steps
involved in a transfer of a franchise or sublease. Usually, if a franchisee sells his
franchise, the franchisor will make the final decision with regard to the new
party's suitability. If the franchisor does not approve of a potential franchisee,
the franchise will not be sold. Once it is sold, the new franchisee will often be
required to complete training and pay a transfer fee. 128
Forcing a former franchisee to remain liable under a contract they are not a
party to is counterintuitive. Since the franchisor has approved of the new
franchisee, and the former franchisee has had no part in drafting the new
agreement, there is no reason why the former franchisee should remain
attached to a subsequent contract. Thus, Manitoba should correct this unfair
practice. In doing so, the following requirements ought to be included in a
provision: (1) the franchisor must approve of the incoming franchisee, only
rejecting potential franchisees with good cause; (2) upon transfer of a franchise,
the incoming franchisee should receive all adequate disclosure documents and
127
Manitoba Law Reform Commission, supra note 14 at 53.
128
Zaid, supra note 67 at 19.