Samoth Financial Corp. Ltd. v. The Queen, 85 DTC 5473, [1985] 2 CTC 275 (FCTD), aff'd 86 DTC 6335, [1986] 2 CTC (FCA)

Collier, J:—The present action involves an income tax reassessment of the plaintiff made by the Minister of National Revenue in April 1979 for taxation years 1974, 1975 and 1976.

At the end of 1974 the plaintiff obtained from a US company, Century 21 Real Estate Corporation, hereinafter referred to as "Century 21 US”, the exclusive right to sell within Canada, Century 21 franchises to licenced real estate brokers together with the right to use the name "Century 21” as well as the service marks and systems pertaining thereto. It proceeded immediately to exercise its rights under the said agreement and to collect and account for revenues obtained from Canadian sub-franchisees.

In 1976 the plaintiff transferred all of its rights under its exclusive Canadian franchise agreement to another Canadian company known as Century 21 Real Estate (Western) Ltd. The relevant facts are to be found in an agreed statement of facts filed by the parties at trial and annexed as a schedule to these reasons.

The issue before the Court is whether the proceeds received by the plaintiff from the sale of various franchises to Canadian real estate brokers constitute proceeds from the disposition of eligible capital property pursuant to subsection 14(1) of the Act, or income from a business pursuant to sections 3 and 9 of the Income Tax Act or, alternatively, whether, if otherwise governed by subsection 14(1), they are proceeds to which section 1100(1)(c) of the Act and Schedule B, Class 14 of the Income Tax Regulations apply.

The plaintiff's position is that the amounts received from the sale of Canadian franchises during the relevant times were amounts paid in respect of eligible capital property which would result in one half of the proceeds being deducted from one half of the original expenditure of $100,000 (ie $50,000) paid to Century 21 US, and none of those receipts being taxable until the full amount of $50,000 had been exhausted. The position of the defendant, on the other hand, is that the proceeds so received constitute ordinary business income. The defendant also adds that the payments in question are excluded from the definition of “eligible capital expenditure” in paragraph 14(5)(b) of the Act as they constitute the cost of intangible property that is “depreciable property” within the above mentioned regulation as being “patents, franchises, concessions or licenses for a limited period”.

The legislation on which the present dispute is founded was introduced in 1971. It has since been amended in 1977. It allowed the taxpayer to create an account, comparable to a capital cost allowance class, for certain intangible assets of an indefinite nature such as goodwill, perpetual or indefinite franchises, costs of rights of way and easements to the extent that they do not constitute an interest in land, incorporation expenses, payments to reduce competition etc. They are commonly known in the accounting world as “nothings”. However, because nothings are quite similar to capital gains and losses, only one half of their cost or of the proceeds of their sale is taken into account. In order to qualify for future deductions the expenditures for nothings must be eligible capital expenditures.

The use of the expression “eligible capital” in the Act is potentially confusing and, to properly interpret the legislation, its meaning must be considered in the context of the following expressions:

1. “Eligible capital property” is defined in paragraph 54(d) in the following terms:

ELIGIBLE CAPITAL PROPERTY

(d) “eligible capital property” of a taxpayer means any property, /2 of any amount payable to the taxpayer as consideration for the disposition of which would, if he disposed of the property, be an eligible capital amount in respect of a business within the meaning given that expression in subsection 14(1).

2. “Eligible capital amount” is defined in paragraph 20(1)(b) and reads as follows:

CUMULATIVE ELIGIBLE CAPITAL AMOUNT

(b) such amount as the taxpayer may claim in respect of any business, not exceeding 10% of his cumulative eligible capital in respect of the business at the end of the year.

3. “Eligible capital expenditure” is one that qualifies as an addition to the cumulative eligible capital. It is defined in subsection 14(5) as follows:

ELIGIBLE CAPITAL EXPENDITURE

(b) “eligible capital expenditure” of a taxpayer in respect of a business means the portion of any outlay or expense made or incurred by him, as a result of a transaction occurring after 1971, on account of capital for the purpose of gaining or producing income from the business, other than any such outlay or expense . . . [The remainder is not relevant to present issues.]

4. The expression “cumulative eligible capital” is taken from paragraph 14(5)(a):

CUMULATIVE ELIGIBLE CAPITAL

(a) “cumulative eligible capital” of a taxpayer at any time in respect of a business means

(i) /2 of the aggregate of the eligible capital expenditures in respect of the

business made or incurred by the taxpayer before that time,

minus

(ii) the aggregate of

(A) all amounts each of which is an amount in respect of any taxation year of the taxpayer ending before that time, equal to the amount deducted under paragraph 20(1)(b) in computing the taxpayer's income for that year from the business,

(B) for each eligible capital amount in respect of the business that became

payable to the taxpayer before that time, the lesser of

(I) the eligible capital amount, and

(II) the cumulative eligible capital of the taxpayer in respect of the business immediately before the disposition as a result of which the eligible capital amount became payable, and

(C) all amounts by which the cumulative eligible capital of the taxpayer in respect of the business at the end of any taxation year of the taxpayer ending before that time was reduced by virtue of subsection (3);

The plaintiffs argument is based on the wording of subsection 14(1) which reads as follows:

SALE OF GOODWILL AND OTHER "NOTHINGS"

14. (1) Where, as a result of a transaction occurring after 1971, an amount has become payable to a taxpayer in a taxation year in respect of a business carried on or formerly carried on by him and the consideration given by the taxpayer therefor was such that, if any payment had been made by the taxpayer after 1971 for that consideration, the payment would have been an eligible capital expenditure of the taxpayer in respect of the business, there shall be included in computing the taxpayer’s income for the year from the business the amount, if any, by which

Comparisons are often dangerous or confusing, yet the present situation might perhaps be likened to that of a taxpayer whose business is to purchase and sell real estate. The proceeds of each sale must necessarily be considered for taxation purposes as ordinary income and not as part of the disposition of a capital asset, the converse being applicable in the case of a taxpayer carrying on a business totally unrelated to the buying and selling of real estate, who incidentally disposes of a piece of real estate because it is no longer required for business purposes. Had the plaintiff, as a real estate broker doing business in Canada who had purchased an exclusive perpetual franchise to use the Century 21 rights throughout the territory, subsequently proceeded to parcel out those rights by granting exclusive privileges and franchises to other real estate brokers covering certain defined territories, the situation would have been quite different.

Counsel referred to several decided cases but both agreed that none is directly on point. In my view, section 14 of the Act cannot be interpreted to change what is intrinsically an income receipt to a capital receipt.

Since the first grounds of defence have prevailed against the plaintiff, no useful purpose would be served in considering the second argument of the defendant.

The action will accordingly be dismissed with costs.

Appeal dismissed.

Schedule to Reasons for Judgment of Collier J dated October 7, 1985.

AGREED STATEMENT OF FACTS

The parties hereto for the purposes of this action only hereby agree that the facts are as follows:

1. Samoth Financial Corporation Ltd (hereinafter referred to as "Samoth”) is a Canadian-controlled private corporation as defined by the Income Tax Act, RSC, 1952, Chap 148, as amended (hereinafter referred to as the "Act”) incorporated pursuant to the laws of the Province of Alberta and registered extraprovincially in the Province of British Columbia.

2. In 1976 Samoth, pursuant to the consent obtained from Century 21 US, transferred all of its rights in and to the said franchise for the Dominion of Canada to Century 21 Real Estate (Western) Ltd. This transfer was effected pursuant to the rollover provisions of Section 85 of the Income Tax Act with the value for the said franchise being agreed upon at $90,000. Thereafter the business was carried on by the said Century 21 (Western) Ltd.

3. Century 21 Real Estate Corporation (hereinafter referred to as "Century 21 US”) is a United States company incorporated pursuant to the laws of the State of California. Century 21 US had developed a plan for the establishment, development and operation of real estate brokerage offices.

4. Pursuant to a contract in writing made the 18th day of November, 1974, Samoth acquired from Century 21 US in consideration for the sum of $100,000 the exclusive right to sell Century 21 franchises to licensed real estate brokers in the Dominion of Canada and to use the Century 21 name, service marks and systems in connection therewith.

5. The aforesaid contract dated November 18, 1974, which is attached as Schedule I to this Agreed Statement of Facts, provides as follows:

(a) Century 21 US has designed and developed standardized signs, cards, stationery, business forms, office procedure manuals, centralized advertising programs, sales training programs and personnel management and control systems for franchised real estate brokerage offices — clause 2;

(b) Century 21 US has developed a standard franchise agreement, sales, tools and brochures, and a plan for the sale of franchises to licensed real estate brokers — clause 3;

(c) Samoth is obligated to pay to Century 21 US 10% of its gross receipts from its franchisees — clause 8A;

(d) Samoth is obligated to operate under the tradename “Century 21 Real Estate of Canada’ — clause 9A;

(e) Samoth must forward to Century 21 US within thirty days after execution by Samoth a copy of each Century 21 Real Estate franchise agreement entered into within the Dominion of Canada — clauses 9C and 6;

(f) Samoth must maintain an adequate staff to ensure responsible service assistance to franchisees, furnish referral forms to all franchisees, act as a clearing house for referral correspondence, not only within its territory but throughout all areas which Century 21 Real Estate franchises are sold, and must advise franchisees in all phases of operation, including staff selection, training, office location layouts and advertising — clause 9E;

(g) Century 21 US is obligated to furnish to Samoth all of its plans, trademarks, trade secrets and business techiques (sic) referred to in this contract — clause 10A(1);

(h) Samoth agrees to provide sufficient newspaper, television, radio or other mass media advertising to equal in dollars at least 10% of the service fees received from all franchised real estate offices of Samoth and Samoth furthermore agrees to pay to Century 21 US 3% of its service fees from franchised real estate offices which Century 21 US is obligated to use exclusively for international advertising space or time — clause 12;

(i) Samoth may not assign this contract nor any of its rights or privileges thereunder without the prior consent of Century 21 US which consent shall not be unreasonably withheld — clause 15;

(j) If Samoth should desire to assign its franchise for Canada it must serve upon Century 21 US a written notice setting forth all the terms and conditions thereof and Century 21 US may either consent to the assignment, deny its consent or, at its option, accept the assignment to itself and acquire the franchise for Canada upon the terms and conditions specified in the notice — clause 16.

6. Samoth, pursuant to the franchise (sic) agreement aforesaid immediately began to sell franchises under the name “Century 21” to various independent brokerage firms in Canada.

7. The aforesaid franchises sold by Samoth in Canada were sold pursuant to a standard form franchise agreement as required and as furnished by Century 21 US. This standard form franchise agreement is attached hereto as Schedule II.

8. The aforesaid standard form Canadian franchise agreement entered into by various Canadian real estate brokers and Samoth provides for, inter alia, the following:

(a) In consideration for an initial franchise fee paid by a franchisee “Century 21” grants to the franchisee a franchise to operate a Century 21 real estate brokerage office;

(b) The initial franchise fee is payable concurrently with the execution of the standard form franchise agreement;

(c) Clause 5 of the standard form franchise agreement provides that the term of the franchise is ten years and clause 13 provides that upon the expiration of the initial term and upon the expiration of each five years thereafter so long as the franchisee shall not then be in default the franchisee shall have the option to renew its franchise for an additional five years on such terms and conditions as are contained in new franchises then being granted by “Century 21” provided however there shall be no renewal fee and the franchisee shall give “Century 21” written notice of its intention to exercise the renewal option at least ninety days prior to the expiration of the initial term and any renewal term and clause 14 provides that the franchise agreement is exclusive and may not be terminated except as provided therein;

(d) In addition to the initial franchise fee a franchisee must agree to a service fee equal to 6% of the franchisee’s gross income derived from all transactions for which a real estate license or security license is required;

(e) The subject franchise agreement authorizes the franchisee to use “Century 21's" tradename, trademarks, goodwill and trade secrets;

(f) “Century 21” is obligated to impart to a franchisee all of its selling, promotional and merchandizing methods and techniques and maintain a staff to give assistance and service to a franchisee;

(g) “Century 21" must operate a sales training program for franchisees and their sales personnel;

(h) Neither the standard form franchise agreement nor any of its rights or privileges may be assigned, transferred, shared or divided by operation of law or otherwise in any manner without the prior written consent of “Century 21” which shall not be unreasonably withheld;

(i) If a franchisee should desire to assign his franchise he shall serve notice upon “Century 21” setting forth all the terms and conditions and “Century 21” may either consent to the assignment or at its option accept the assignment to itself upon the terms and conditions specified in the notice but if “Century 21” should do neither the consent to the assignment shall be deemed granted.

9. In the 1975 taxation year the “initial franchise fee" was $5,000.00. This fee has been increased from time to time and is now $12,000.00. Also the initial term of the standard form franchise agreement was subsequently reduced to five years with the five year renewal provisions remaining unchanged.

10. The firm of Touche Ross & Co, Chartered Accountants, the auditors for Samoth, prepared the company's financial statements and T-2 income tax return for the 1975 taxation year and in doing so reported as income from business the aforesaid 6% gross income service fee pursuant to the provisions of sections 3 and 9 of the Income Tax Act and included in income a portion of the proceeds realized on the sale of franchises in Canada on the basis that the said proceeds were realized on the disposition of eligible capital property as defined by subsection 14(1) of the Act.

11. Samoth has never at any material time carried on the business itself of operating or maintaining a real estate brokerage office.

12. By Notice of Reassessment dated April 27, 1979 the Minister of National Revenue reassessed Samoth to tax with respect to its 1975 taxation year by including in income from business, pursuant to sections 3 and 9 of the Act, the proceeds realized on the sale of franchises in Canada for that taxation year rather than including in income only a portion of those proceeds pursuant to the provisions of section 14(1) of the Act.

The parties hereto by their respective solicitors have by their signatures endorsed hereon agreed, for the purposes of this action, to the facts recited above.

SCHEDULE I

CENTURY 21 SUBFRANCHISE AGREEMENT

This agreement made this 18th day of November, 1974, by and between CENTURY 21 REAL ESTATE CORPORATION, a corporation, hereinafter called “Century 21” or “Franchisor" and SAMOTH CORPORATION LIMITED, hereinafter called “Subfranchisor".

RECITALS

1. Century 21 has developed a plan for the establishment, development, and operation of real estate brokerage offices, and has devised policies, procedures and office management techniques designed to enable such offices to compete with larger real estate brokerage chains.

2. In order to advertise the trade name and facilitate the merchandising techniques utilized thereunder, Century 21 has designed and developed standardized signs, making use of a logo type insignia, cards, stationery, business forms, office procedure manuals, centralized advertising programs, sales training programs and personnel management and control systems for franchised real estate brokerage offices.

3. Century 21 has developed a standardized franchise agreement, sales tools and brochures, and a plan for the sale of franchises to licensed real estate brokers.

4. Subfranchisor desires to purchase the right to use said plans, manuals, systems and forms and the exclusive right to sell franchises of the types sold by Century 21 to real estate brokers in the territory described below.

AGREEMENT

5. SUBFRANCHISOR

A. For and in consideration of payment of One Hundred Thousand Dollars ($100,000.00) by Subfranchisor to Century 21 upon terms herein set forth and the execution of this Agreement, Century 21 grants to Subfranchisor the exclusive right to sell Century 21 franchises to licensed real estate brokers in the territory described below and to use the Century 21 name, service marks and systems in connection therewith. The One Hundred Thousand Dollars ($100,000) consideration to be paid by Subfranchisor to Century 21 shall be payable Five Thousand Dollars ($5,000) on execution of this Agreement, Five Thousand Dollars ($5,000) at least seven (7) days prior to the first breakfast meeting held for prospective franchisees, but in no event more than six (6) months from the date hereof, and the balance in instalments of Two Thousand Dollars ($2,000) per month including interest at six per cent (6%) per annum on the unpaid balance, said monthly payments to commence one hundred twenty (120) days after Subfranchisor’s first Century 21 franchisees open for business under the name Century 21, but in no event later than one (1) year from the date hereof.

B. Century 21 authorizes Subfranchisor to the extent it is authorized by law to do so, to engage in the escrow business, mortgage loan and/or mortgage brokerage business, and general insurance agency business, provided that Subfranchisor shall obtain for itself such licenses or additional licenses as may be required by various governmental agencies to engage in said businesses.

C. Except as expressly authorized herein, nothing herein contained shall be construed as authorizing or permitting Subfranchisor to use such trade name, service marks, goodwill, manuals, plans, forms or trade secrets at any other location or area or for any purpose other than the sale of franchises to licensed real estate brokers and salesmen upon substantially the same terms as such franchises are sold by Century 21 in the County of Orange, State of California, USA, and for the purpose of servicing of those franchises. It is expressly agreed that the ownership of all right, title and interest in and to said trade name, trademarks, goodwill and trade secrets is and shall remain vested solely in Century 21, and that material and information now and hereafter provided or revealed to Subfranchisor under and pursuant to this Agreement are revealed in confidence and Subfranchisor agrees that upon the expiration, termination or assignment of this subfranchise for any reason all manuals, bulletins, instruction sheets, forms, marks, designs and other material furnished to Subfranchisor under and pursuant to this Agreement shall be returned to Century 21 or turned over to the assignee approved by Century 21, and Subfranchisor shall immediately cease using the name, trademark, goodwill and trade secrets of Century 21.

It is understood that Century 21 is constantly working to improve upon its franchise system. Century reserves the right to make changes from time to time in the service marks, names, manuals, forms and in the system to be used by Subfranchisor and its franchisees.

D. Century 21 reserves the right to approve in advance the form, content and general appearance of any literature, signs or other materials or things on which a Century 21 name or service mark is used, and Subfranchisor agrees not to use such names or service marks without obtaining said approval from an authorized officer of Century 21. Century 21 agrees not to withhold its consent unreasonably. Any use of a Century 21 name or service mark by Subfranchisor or its franchisees shall inure to the benefit of Century 21.

It is anticipated that due to differences in the laws and the business practices in the United States and Canada it will be necessary for Subfranchisor to have its supplies and printed materials locally produced. Subfranchisor agrees to arrange for its own suppliers in Canada and agrees to bear all expenses of adapting Century 21's materials for use in Canada, but all such changes shall require the written approval of Century 21 which shall not be unreasonably withheld. It shall be the obligation of Subfranchisor to maintain the same high standards with respect to materials and supplies as are maintained by Century 21 in the United States of America.

6. TERRITORY. The exclusive territory sold to Subfranchisor shall consist of: The Dominion of Canada.

7. TERM. The subfranchise hereby granted shall be perpetual unless terminated by mutual agreement or unless sooner terminated as hereinafter provided.

8. SERVICE FEE.

A. For the franchise hereby granted, Subfranchisor agrees to pay to Century 21 ten per cent (10%) of its gross receipts from its franchisees (including but not limited to consideration for the initial issuance of any franchise or the renewal or extension thereof for the first twenty-five (25) years of the term hereof and ten per cent (10%) thereafter. In addition, Subfranchisor agrees to pay to Century 21 ten per cent (10%) of the gross receipts from any other business or activity in which the Century 21 name, trademarks, goodwill or trade secrets are used; provided, however, nothing contained herein shall be construed to permit Subfranchisor to use the Century 21 name, trademarks, goodwill or trade secrets in a manner not expressly contemplated by this Agreement. Subfranchisor shall also pay to Century 21 ten per cent (10%) of its gross receipts from the property management business, appraisal business, mortgage loan and/or mortgage brokerage business, escrow business, insurance business, termite control and inspection business, household moving business, construction business, title and/or title insurance business, and any other business involving the sale of goods or services to its Century 21 Real Estate franchisees or the customers of its franchisees. This paragraph shall not be construed to apply to the occasional sale by Subfranchisor of real estate held by it for investment and not for sale in the ordinary course of business.

B. It is contemplated that Subfranchisor may enter the escrow business, insurance business and other businesses made possible by the sale of Century 21 franchises and that said business may be entered through subsidiaries of Subfranchisor. In the event subsidiaries are used to enter said businesses, the gross receipts of each such subsidiary shall be consolidated with the gross receipts of Subfranchisor and transactions between Subfranchisor and its subsidiaries shall be ignored for the purpose of determining the total gross receipts upon which service fees are to be paid.

C. Subfranchisor agrees to act in good faith in making decisions whether or not to enter the businesses referred to above, and Subfranchisor shall not refrain from entering one of the businesses referred to above for the purpose of permitting shareholders, officers, or directors of Subfranchisor or other persons related directly or indirectly to Subfranchisor, to conduct one or more of said businesses selling goods or services to Century 21 Real Estate franchisees or the customers of said franchisees.

D. If in the future as the result of any court decision, legislation or governmental regulation it shall be illegal or impractical for Century 21 to collect a service fee based on gross receipts from all of the business activities specified above, the service fee shall be revised as follows:

(1) During the period that the revision is being made, Subfranchisor shall pay to Century 21 at least monthly a sum equal to the average sum which was payable during the twelve (12) months immediately prior to said court decision, legislation or governmental regulation, and

(2) Century 21 and Subfranchisor shall immediately determine the gross receipts of Subfranchisor from all business activities listed above for the twelve (12) month period immediately preceding the court decision, legislation, or governmental regulation referred to above (said sum hereinafter referred to as “total A”) and shall determine the gross receipts of Subfranchisor during said period from all business activities excepting the business activity on which Century 21 cannot legally collect a percentage. (Said sum hereinafter referred to as “total B’’). If Subfranchisor shall have been in business for less than twelve (12) months immediately preceding the court decision, legislation or governmental regulation referred to above, then only the period of time that Subfranchisor was in business prior to said court decision, legislation or governmental regulation shall be used in computing total A and total B. The new service fee percentage shall be that percentage of total B which yields a sum of money exactly equal to ten per cent (10%) of total A. Immediately after the computation of the new percentage Century 21 and Subfranchisor agree to execute an addendum to this agreement setting forth the new percentage and providing that the service fee shall be payable only on those business activities on which Century 21 can legally collect a service fee.

E. If as the result of any court decision, legislation or governmental regulation, the above paragraph with respect to revision of service fee shall also be held to be illegal or unenforceable, Century 21 and Subfranchisor agree to negotiate in good faith to arrive at a new service fee percentage to be paid on those business activities on which Century 21 can legally collect a service fee. If Century 21 and Subfranchisor shall be unable to agree within ninety (90) days , this agreement shall be of no further force or effect.

9. OBLIGATIONS OF SUBFRANCHISOR

A. Subfranchisor shall operate under the trade name CENTURY 21 REAL ESTATE OF CANADA.

B. Subfranchisor shall obtain at its own expense an approriate registration or permit as required by any present or future applicable franchise investment law, securities act, blue sky law or any similar law regulating the sale of securities or franchises in its territory, to sell real estate franchises of exactly the same type as those being sold by Century 21 in Orange County, California, USA. Subject only to minor variations approved in advance by Century 21 in writing. Subfranchisor agrees to sell real estate franchises to licensed real estate brokers upon the same terms and conditions as those franchises are being sold by Century 21 in Orange County, California, USA at the time of sale.

C. Subfranchisor shall forward to Century 21 within thirty (30) days after execution by Subfranchisor, a copy of each Century 21 real estate franchise agreement entered into within the described territory. Century 21 shall advise Subfranchisor in writing of the terms and conditions upon which it or its subsidiaries are selling real estate franchises in Orange County, California, USA and of any changes in said terms and conditions as shall occur from time to time. In addition, Subfranchisor agrees to adopt a policy and procedure manual substantially identical to that used from time to time by Century 21 or its subsidiaries, subject only to changes approved by Century 21 to conform to local laws and business practices, and to require its real estate franchisees to adhere to the policy and procedure manual. Also, Century 21 reserves the right to adopt a policy and procedure manual setting forth policies and procedures required to be followed by all Century 21 subfranchisors and in such event Subfranchisor agrees to comply with said regional policy and procedure man-

ual. Subfranchisor recognizes the need for standardization and uniform high standards throughout North America and agrees to do its part in maintaining such standards.

D. Subfranchisor agrees to provide the same services to franchisees and maintain the same quality of services to franchisees as Century 21 shall provide from time to time to its franchisees in Orange County, California, USA. Century 21 agrees that subject to variations in local conditions, it will be consistent in the services which it provides to franchisees in Orange County, California, USA, and the services which it provides to its direct franchisees in other areas. In addition, Century 21 agrees that it will be reasonably consistent in the standards and quality of services which it imposes upon Subfranchisor and upon other subfranchisors which it may have from time to time.

E. Subfranchisor shall maintain an adequate staff to insure responsible service assistance to franchisees, shall furnish referral forms to all franchisees, shall act as clearing house for referral correspondence not only within its territory but throughout all areas in which Century 21 Real Estate franchises are sold, and shall advise franchisees in all phases of operation, including staff selection, training, office location, layouts and advertising.

F. Without the written consent of Century 21, Subfranchisor shall not use the Century 21 name or trademarks for any purpose other than the sale of real estate franchises to licensed real estate brokers, and such other businesses as are authorized by Article 5 hereof, and Subfranchisor shall not engage in any other business related to or made possible by its real estate franchising business without the written consent of Century 21. Century 21 agrees that it will not withhold its consent unreasonably but may impose reasonable conditions. Subfranchisor shall not engage in any practices which would tend to give preference to or show commercial favoritism toward any one or more of its franchisees over other franchisees.

G. Subfranchisor shall not use the name, trademarks, trade secrets or engage in the sale of Century 21 franchises outside the purchased territory.

H. Subfranchisor shall cause to be opened at least forty (40) franchised real estate brokerage offices within the first twelve (12) months of the term of this Agreement, and thirty (30) additional franchise real estate brokerage offices in each twelve (12) month period thereafter through the end of the fourth year of the term of this agreement. In addition, Subfranchisor agrees to work diligently and in good faith to open franchised real estate brokerage offices throughout the territory described herein and to utilize the entire territory for the entire term of this agreement.

I. Subfranchisor agrees to implement any innovations or changes in services to franchisees within a reasonable time, in no event to exceed six (6) months, after being informed of innovations or changes in services being provided by Century 21 to its franchisees in Orange County, California, USA, providing such change or innovation does not impose an unreasonable financial burden on Subfranchisor.

J. Subfranchisor agrees to maintain at all times at its principal office a central bookkeeping system which shall conform to standards uniformly imposed by Century 21 and to make Subfranchisor's books and records open and available to Century 21 for inspection and copying during normal business hours. In addition, Subfranchisor agrees to mail to Century 21 copies of such monthly financial reports as Subfranchisor shall prepare for its own management.

K. Subfranchisor represents that at the time of execution of this Agreement it has a net worth of not less than $20,000.00.

L. Neither Subfranchisor nor its officers, directors, or shareholders owning more than ten per cent (10%) of its outstanding stock shall enter the real estate brokerage business in competition with Subfranchisor's franchisees, or have a financial interest, either directly or indirectly, in any of its franchisees without the written consent of Century 21. Century 21 hereby gives its consent to Peter Thomas owning fifty per cent (50%) of the stock of Western Diversified Holdings International Ltd which in turn owns Mason Realty Ltd which operates a single real estate sales office so long as the number of offices operated by these companies shall not be increased.

M. Subfranchisor agrees to comply with all state and federal laws and with all local laws and ordinances and to obtain and maintain any and all licenses and permits necessary to conduct its business in the provinces, areas or regions comprising the described territory.

N. Subfranchisor shall not sell a franchise to any person or entity who has had a franchise from another competing real estate franchise organization within ninety (90) days prior to the proposed sale without the written consent of Century 21. Century 21 agrees not to withhold its approval unreasonably.

O. Subfranchisor’s principal office and any branch office which Subfranchisor proposes to establish for the purpose of providing services to its real estate franchisees shall be established and maintained only in locations approved in writing in advance by Century 21. Century 21 agrees not to withhold its approval unreasonably.

P. Subfranchisor agrees to hold Century 21 free and harmless from any liability, damages, or expense (including but not limited to attorneys fees and court costs) arising out of any legal action based upon the alleged errors or omissions of Subfranchisor or any one or more franchised real estate brokers in the described territory or their agents or employees. Subfranchisor agrees to maintain public liability insurance in an amount not less than $500,000 with Century 21 named as an additional insured and to provide Century 21 with evidence of such insurance.

10. OBLIGATIONS OF CENTURY 21.

A. Century 21 agrees:

(1) To furnish to Subfranchisor all of its plans, trademarks, trade secrets and business techniques referred to above.

(2) To keep Subfranchisor informed of innovations and changes in services and agreements adopted from time to time in Orange County, California, USA, together with the methods of implementing same.

(3) To provide Subfranchisor with a reasonable amount of counselling and guidance in the establishment and maintenance of its business.

B. The above services are to be provided at the principal office of Subfranchisee.

C. Century 21 represents that it has now pending before the US Patent Office and before similar offices in Canada and various foreign countries applications for registration of the “Century 21” service mark and will apply for registration of any other service marks adopted in the future.

11. RELATIONSHIP OF PARTIES. In all matters pertaining to the operation of Subfranchisor’s business, Subfranchisor is and shall be an independent contractor. Nothing herein contained shall be construed so as to create a partnership, joint venture or agency, and neither party shall be liable for the debts or obligations of the other.

12. ADVERTISING. Subfranchisor agrees to provide sufficient newspaper, television, radio or other mass media advertising to equal in dollars at least ten per cent (10%) of the service fees received from all franchised real estate offices of Subfranchisor. In addition, Subfranchisor agrees to pay to Century 21 three per cent (3%) of its service fees from franchised real estate offices which Century 21 shall use exclusively for international advertising space or time. It is understood and agreed that Century 21 shall not be required to spend its international advertising budget including said three per cent (3%) on a basis which is exactly proportional between the various Century 21 regions so long as said funds are spent on media which in the advertising industry are regarded as “international media”. Century 21 may spend up to fifteen per cent (15%) of its international advertising budget (including said three per cent (3%) on a disproportionate basis to establish the Century 21 name in new territory, engage in test marketing, build up a laggard territory, or other purposes deemed beneficial by Century 21 to the general recognition of the Century 21 name and the success of its franchise system in the United States and other countries where real estate is bought and sold. “Service fees” for the purpose of this Article 12 only shall include all income received by Subfranchisor from its franchised real estate offices except the initial franchise fee in connection with the sale of a franchise, and shall not include income from sources other than the franchised real estate offices of Subfranchisor such as escrow fees and insurance fees. Further, Franchisor shall provide annually to Subfranchisor a full and complete accounting of all funds collected and all funds expended under this paragraph.

13. NAME.

A. Century 21 cannot guarantee that there is not a business somewhere in the described territory using the name Century 21 or a substantially similar name, which business has the right to continue to use the name if it has been using the name for a sufficiently long period of time. Subfranchisor agrees to make a name and directory search of the name Century 21 in the described territory before commencing business and to provide Century 21 with a copy of the results of the search. Century 21 agrees to pay the first $100 of the cost of the search. Century 21 is already aware of a real estate broker in or near the City of Hamilton, Ontario, who claims the right to use the name “Century 21”. Century 21 will retain solicitors at its own expense in an effort to resolve this problem. If any further problem should be encountered with respect to the name “Century 21” or with respect to any future service marks, Century 21 shall select barristers and/or solicitors to represent both Century 21 and Subfranchisor, and the legal expenses shall be divided equally. Any out of court settlement of such matters shall require the approval of both Century 21 and Subfranchisor and the expense of the out of court settlement shall be borne by Subfranchisor.

B. Century 21 agrees that in the event Subfranchisor shall be enjoined or restrained from operating under the name and style of Century 21 in the described territory as the result of any order entered by a court of competent jurisdiction, or on account of litigation brought in said court by any firm, person or corporation having prior common law or statutory rights to operate under the name “Century 21” or derivations thereof, Subfranchisor may rescind this Agreement and receive a refund of any funds paid pursuant to paragraphs 5 and 7 up to the date of such rescission.

14. CONFERENCES. It is understood that Century 21 reserves the right to hold periodic conferences for all Century 21 subfranchisors, and Subfranchisor agrees to cause its principal officers to attend such conferences at Subfranchisor's expense.

15. ASSIGNMENT. This Agreement is being entered into by Century 21 in reliance upon and in consideration of the singular skill, qualifications and representations of the present officers and shareholders of Subfranchisor who will actively participate in the ownership and operation of the purchased business. Therefore, neither this Agreement nor any of its rights or privileges shall be assigned, transferred, shared or divided by operation of law or otherwise, in any manner without the prior written consent of Century 21. Such consent shall not be unreasonably withheld; however, Subfranchisor shall reimburse Century 21 for all costs and expenses incurred in connection with any such assignment or proposed assignment, including reasonable costs not to exceed $1,000.00 of investigating the proposed assignee, and attorney's fees not to exceed $1,000.00. One or more sales or transfers of stock totalling more than twenty-five per cent (25%) of the stock of Subfranchisor shall be deemed an assignment of this Agreement.

16. RIGHT OF FIRST REFUSAL. If Subfranchisor shall desire to assign its subfranchise, it shall serve upon Century 21 a written notice setting forth all the terms and conditions of the proposed assignment and all available information concern- ing the proposed assignment and the proposed assignee. Within fifteen (15) days after the receipt of such notice (or if Century 21 requests additional information, within fifteen (15) days after receipt of such additional information) Century 21 may either consent to the assignment, deny its consent giving the reasons therefor or, at its option, accept the assignment to itself and acquire the subfranchise upon the terms and conditions specified in the notice. Consent to an assignment upon the specified terms and conditions shall not be deemed to be a consent to an assignment on any other terms and conditions, nor to any other person, nor to any other or subsequent assignment. /n the event of a sale or transfer of any stock in Subfranchisor Century 21 may condition its approval of the assignment upon this right of first refusal being extended to apply to the proposed sale or transfer of stock when the total amount to be transferred exceeds twenty-five per cent

(25%) or when the total amount to be transferred when added to any previous transfers exceeds twenty-five per cent (25%).

17. DEFAULT.

A. If Subfranchisor shall fail to maintain the number of open and operating franchised real estate offices required in its territory, Century 21 may give Subfranchisor written notice to correct said deficiency by increasing the number of open and operating franchised real estate offices in the territory, and maintain that number of offices open and operating continuously for a period of six

(6) months. If Subfranchisor shall fail to do so, Century 21 may at its option terminate this Agreement as to the territory as a whole.

B. Service fees shall be paid by Subfranchisor to Century 21 at least monthly on or before the twentieth (20th) day of the calendar month following the month in which the income or receipts were received by Subfranchisor, together with a written report setting forth the amount of income received from each franchisee. If Subfranchisor shall be more than thirty (30) days late with any payment or report, Subfranchisor agrees to pay to Century 21 the additional sum of Fifty Dollars ($50) as a late charge, plus interest at eight per cent

(8%) per annum on the amount of the late payment, if any.

C. Upon any default by Subfranchisor other than failure to maintain the minimum required number of open and operating franchised real estate offices, Century 21 may in addition to any other remedy herein granted or granted by law elect to terminate this Agreement. If Century 21 elects to terminate, it shall notify Subfranchisor by registered mail at its place of business and upon the failure of Subfranchisor to correct the default within thirty (30) working days this contract shall be terminated.

18. TERMINATION. Upon the termination of this Agreement, Subfranchisor agrees to change its corporate name within thirty (30) days to eliminate the words “Century 21” therefrom. In addition, any and all franchise agreements entered into by Subfranchisor with real estate brokers or others involving the use of the Century 21 name or service marks shall within thirty (30) days be assigned to Century 21 and the gross receipts from franchises from and after the date of said termination shall be paid over by Subfranchisor to Century 21. Immediately upon termination Subfranchisor shall cease to use the trade name “Century 21 Real Estate” or any of the service marks or trade secrets of Century 21.

19. TRADE SECRETS AND COMPETITION. Except as specifically provided in Article 5 hereof, Subfranchisor, its officers, directors and any shareholders holding more than ten per cent (10%) of its stock shall not engage in the sale of other real estate franchises, title insurance, mortgage insurance, brokerage or any business providing goods or services to real estate brokers or their customers, either directly or indirectly as a partner, shareholder or otherwise, without the written consent of Century 21. In addition, Subfranchisor agrees to obtain a written agreement in form satisfactory to Century 21 from its officers, directors and shareholders holding more than ten per cent (10%) of its stock for the benefit of itself and Century 21, that they shall not use or allow the use of Century 21 trade secrets by others without the written consent of Century 21.

20. INSPECTION OF BOOKS AND RECORDS. Subfranchisor agrees to maintain a complete set of books and records at its principal place of business at all times, and provide Century 21 with a certified audit of its books at least annually. Subfranchisor shall allow Century 21 to make inspections of Subfranchisor’s business, including its books and records, at any reasonable time during normal working hours provided an officer, manager, or principal of Subfranchisor or a representative of Subfranchisor’s accounting firm shall be present at the commencement of any audit. If any audit of Subfranchisor’s books and records discloses that Century 21 has been underpaid by more than ten per cent (10%) during any twelve (12) month period, Subfranchisor agrees to reimburse Century 21 for the cost of said audit plus three (3) times the amount of the deficiency with the next regular monthly payment.

21. WAIVER. No waiver of any breach of any condition or covenant herein shall constitute a waiver of any subsequent breach.

22. DEFINITION OF STANDARDS. Any reference in this Agreement to Century 21’s “Orange County Operations” or to Orange County, California, USA, as a standard to be met by Subfranchisor with respect to production, services, or any other matter referred to herein where the Century 21 “Orange County Operations" are to be used as a standard of comparison, shall be binding upon Subfranchisor only so long as Century 21 shall be attempting to maintain the same or similar standards of production, services, prices and other matters throughout the areas in which it has direct real estate franchises, including Orange County, California, USA.

23. INSOLVENCY. No corporation, firm or person other than Subfranchisor shall have or acquire any right or rights sold to Subfranchisor hereunder by virtue of any bankruptcy, insolvency or assignment for the benefit of creditors or reorganization proceedings, or any receivership or other legal process, either under attachment, execution or otherwise, or in any manner whatsoever growing out of any proceeding or suit in law or in equity. In the event of any such proceeding being had or taken by or against Subfranchisor, or any assignee or successor in interest of Subfranchisor or against any interest of Subfranchisor in this Agreement, or in the event of any proceedings by or against Subfranchisor, or any assignee or successor in interest of Subfranchisor, under any provisions of the law, including the various chapters of the bankruptcy act, or for the involuntary winding up of Subfranchisor or any assignee or successor in interest of Subfranchisor, without such proceedings being dismissed or such levies released within five (5) days therefrom, Century 21 shall have the option of terminating this Agreement immediately. In the event of any proceedings to wind up or dissolve Subfranchisor, or any corporate assignee or successor in interest of Subfranchisor, Century 21 shall have the option of terminating this Agreement immediately.

24. CONTINGENCIES. This entire Agreement shall be subject to:

A. Century 21’s obtaining a permit or other applicable authority, if necessary under federal law or the law of any province in the described territory, authorizing Century 21 to sell this subfranchise.

B. Subfranchisor agrees to use due diligence and do all things reasonably necessary to obtain such licenses and/or permits as are necessary to sell real estate franchises within the stated territory. In the event that Subfranchisor has not obtained such necessary licenses and/or permits within five (5) months from the date hereof, this Agreement shall be null and void and of no further force or effect.

25. AMENDMENT. Any modification or change in this Agreement must be in writing.

26. ATTORNEY'S FEES. If any action shall be instituted to interpret or enforce the terms and conditions of this Agreement, the prevailing party shall be entitled to recover reasonable attorney's fees.

27. CONSTRUCTION. This Agreement shall be construed according to the laws of the State of California, USA. If any provisions of this Agreement are or shall become in conflict with laws, ordinances or regulations of any governmental entity or body having jurisdiction over all or a substantial portion of the described territory, said provisions shall be automatically deleted and the remaining terms and conditions of this Agreement shall remain in full force and effect, provided, in the opinion of each party hereto, such deletions can be made without materially affecting the basic agreement and relationship between the parties hereto. If, in the opinion of either party hereto, such deletions cannot be made without materially affecting the basic agreement and/or relationship between the parties hereto, this Agreement may be terminated by either party hereto and in such event the parties agree to negotiate in good faith to establish a new agreement which is not in conflict with such laws, ordinances or regulations.

28. NOTICES. Any notice to be given to or served on either of the parties hereto shall be deemed given or served forty-eight (48) hours after deposit thereof in the United States mail, postage prepaid, certified or registered mail, to Century 21, at 2114 North Broadway, Santa Ana, California, USA. 92706, to Subfranchisor c/o Eli Shtabsky, 1200 Cambridge Building, Edmonton, Alberta, Canada, or to either of them at such address or addresses as they may designate in writing from time to time.

29. BINDING ON SUCCESSORS. This Agreement is binding on and shall inure to the benefit of the parties hereto, their heirs, successors and assigns. Century 21 reserves the right to assign, pledge, hypothecate or transfer this Agreement provided that such assignment, pledge, hypothecation or transfer shall not affect the rights and privileges granted to Subfranchisor herein.

IN WITNESS WHEREOF the parties hereto have executed this Agreement the day and year first above written.

SAMOTH CORPORATION	CENTURY 21 REAL ESTATE
LIMITED	CORPORATION
a Canadian Corporation	a corporation
BY:	BY:
BY:	BY:
(Subfranchisor)	(Franchisor)

SCHEDULE II

CENTURY 21 REAL ESTATE LIMITED division of Samoth Corporation Limited

FRANCHISE AGREEMENT

THIS AGREEMENT made this day of , 197 , by and between CENTURY 21 REAL ESTATE LIMITED, a division of SAMOTH CORPORATION LIMITED, a corporation, and a licensed real estate broker, with registered offices in the Province of —

hereinafter called “Century 21”, and —— of — , hereinafter called “franchisee”.

RECITALS:

1. Century 21 has developed a system for the promotion and operation of individual real estate brokerage offices, and has devised policies, procedures and techniques designed to enable such offices to compete more effectively in the real estate sales market. The system includes, but is not limited to, common use and promotion of the name “Century 21”, centralized advertising programs, recruiting and sales training programs, and inter-office referral program. Century 21 is constantly working to revise and improve upon the system.

2. Century 21 franchises real estate brokerage offices to use the system and operate under the name “Century 21”, and Franchisee desires to obtain a franchise to operate a real estate brokerage office under the terms and conditions hereinafter set forth.

3. Franchisee is a licensed real estate broker under the laws of the Province of

and is familiar with Century 21 and its operation. Based upon the information supplied by Franchisee, Century 21 believes that Franchisee possesses the necessary skill, experience and financial ability to successfully operate a franchised real estate brokerage office.

4. Century 21 has been granted the right to use the Century 21 name, logo, and other identifying marks used in the "system” by Century 21 Real Estate Corporation (California) for certain regional territory which includes Franchisee’s location.

AGREEMENT

5. FRANCHISE:

For and in consideration of the initial franchise fee to be paid by Franchisee to Century 21 and the execution of this Agreement, Century 21 hereby grants to Franchisee, and Franchisee hereby accepts a franchise to operate a Century 21 Real Estate Brokerage Office.

The initial franchise fee payable concurrently with the execution of this Agree ment is $ The term of the franchise is ten (10) years commencing , 19 , and ending, 19

6. LOCATION:

Franchisee is hereby granted the right to operate a Century 21 Real Estate Bro- kerage Office at the following described location:

Franchisee may move the office to a new location in the same general vicinity with the written approval of Century 21, which approval will not be unreasonably withheld.

With the written consent of Century 21, Franchisee may open a temporary tract sales office within or immediately adjacent to a new subdivision or development for the sole purpose of selling property in the subdivision or development. Century 21 may impose such conditions as it deems necessary to insure that such temporary tract sales offices are, in fact, temporary and are used only in conjunction with the initial sales program for a particular subdivision or development.

7. FRANCHISE FEE:

In consideration of this Agreement and the services to be rendered by Century 21 as herein described, Franchisee agrees to pay, in addition to the “initial franchise fee” set forth in paragraph 5 above, a "service fee” equal to 6% of Franchisee’s gross income derived from all transactions for which a real estate license or securities license is required except income from leases or rentals for a term of less than one (1) year. Income from property management services shall also be excluded from Franchisee’s income for the purpose of computing service fees unless more than 25% of Franchisee’s income derived from all transactions for which a real estate license or securities license is required is income from property management services. Said fees shall be paid to Century 21 by Franchisee forthwith upon receipt thereof, or at the close of the subject transaction. Century 21 has the right to establish procedures from time to time for verifying and processing said fees.

The “initial fee” is fully earned by Century 21 upon execution of this Agreement, and the “service fee” is earned upon receipt of income by Franchisee except as may be provided elsewhere in this Agreement. Franchisee agrees to direct the escrow company, attorney or other party handling the closing of any transaction in which a commission is to be paid to pay the service fee directly to Century 21; in other transactions, it shall be paid on receipt of income by Franchisee. Service fees more than ten (10) days late shall bear interest at the rate of 1 /2% per month.

Commencing four months from the date of this Agreement, Franchisee agrees to pay to Century 21 on the first day of each calendar month for the month immediately preceding said payment date a “minimum service fee” of $100.00. Any service fees paid to Century 21 during the preceding month shall be credited against said minimum service fee.

8. NATURE AND VALUE OF FRANCHISE NAME, TRADEMARKS AND GOODWILL:

The franchise granted hereby authorizes Franchisee to use Century 21's trade name, trademarks, goodwill and trade secrets in the operation of a real estate brokerage business at the location set forth above. Nothing herein contained shall be construed as authorizing or permitting Franchisee to use such trade name, trademarks, goodwill or trade secrets at any other location or for any other purpose. It is expressly agreed that the ownership of all right, title and interest in and to said trade name, trademarks, goodwill and trade secrets is and shall remain solely in Century 21, and that the material and information now and hereafter provided or revealed to Franchisee under and pursuant to this Agreement are revealed in confidence, and Franchisee expressly agrees to keep and respect the confidence so reposed. Upon termination of this franchise for any reason, all manuals, bulletins, instruction sheets, forms, marks designs and other material furnished to Franchisee under and pursuant to this Agreement, shall be returned to Century 21, and Franchisee shall cease to use any materials bearing the name “Century 21”.

So long as this Franchise Agreement shall remain in effect, Franchisee agrees to maintain a clean and attractive office, give prompt, courteous and efficient service to the public, comply with the Office Procedure Manual (as it may be changed from time to time), and generally operate the franchised real estate brokerage office in compliance with the Century 21 system so as to preserve, maintain and enhance the reputation and goodwill built up by Century 21 and its Franchisees and the value of Century 21’s trade name and trademarks.

9. NAME:

Franchisee shall operate under the trade name “Century 21” and shall use no other name in conducting business for which a real estate license is required, except that Franchisee shall incorporate in the logo his own name, or other identifying words approved by Century 21, immediately following the trade name “Century 21”, provided, however, (1) Franchisee's name or other approved words, shall not exceed 20% of the surface area of the entire name and logo, and

(2) the total appearance of the trade name and logo incorporating Franchisee’s name or other identifying words shall be approved in advance by Century 21. Century 21 shall not withhold such approval unreasonably. If applicable, Franchisee will file for and maintain a “Certificate of Fictitious Name” in the county where Franchisee's office is located in a manner approved by Century 21 with evidence of such filing.

Franchisee shall include a statement on his letterhead, deposit receipt forms and other printed materials that each Century 21 Real Estate Brokerage Office is independently owned and operated and display a notice to this effect in a prominent place near the main entrance to Franchisee's office.

10. RELATIONSHIP OF PARTIES:

Franchisee is and shall be an independent contractor and nothing herein contained shall be construed so as to create a partnership or joint venture between the parties. Neither Century 21 nor Franchisee shall act as agent for the other, and neither Franchisee not Century 21 shall guarantee the obligations of the other or in any way become obligated for the debts or expenses of the other unless mutually agreed in writing.

The conduct of Franchisee’s business and the time and manner in which Franchisee shall obtain listings and sell properties shall be determined by its own judgment and discretion, subject only to the provisions of this Franchise Agreement and the Office Procedure Manual, as it shall be adopted or revised from time to time.

11. SERVICES OF CENTURY 21:

A. Century 21 will impart to Franchisee all of its selling, promotional and merchandising methods and techniques, and shall maintain a staff to give assistance and service to Franchisee.

B. Century 21 will publish from time to time supply manuals suggesting sources of supply for all forms, contracts, signs, cards, stationery and other items necessary to operate a modern real estate business. The suggested source of supply for an individual item may be either Century 21 or an independent ontractor. Franchisee may purchase supplies either from a source of supply recommended by Century 21 or from any other supplier who can first demonstrate to Century 21’s satisfaction that it can supply the items upon the same specifications as those presently being supplied by approved sources of supply.

C. The Regional Offices by Century 21 will furnish sample referral forms to all Franchisees for use in referring business between Century 21 franchisees. Century 21 will also establish procedures for referrals between Franchisee and other Century 21 offices.

D. Century 21 will operate a sales training program for Franchisees and their sales personnel. This program will include seminars and conferences of special interest, to be held as Century 21 deems necessary or advisable, as well as educational and informational bulletins relating to such topics as market conditions, sales motivation, sales aids, advertising and financing. Conferences and seminars may be held on a fee or no-fee basis, depending on the range of interest and location.

12. OBLIGATIONS OF FRANCHISEE:

A. Franchisee shall pay promptly to Century 21 any fees due hereunder, as well as any additional fees or charges incurred for any products, supplies, or services to be furnished by Century 21 at Franchisee’s request. Terms on products, supplies and services purchased shall be “net 15-days”, with interest at the highest legal rate after fifteen (15) days.

B. Franchisee agrees to maintain and keep such records and reports as are prescribed by Century 21, and shall mail copies of such reports and records to the designated Century 21 address in accordance with schedules required by Century 21. A report of each brokerage transaction in which a service fee is payable shall be filed with the Century 21 Regional Office within seven (7) days of the execution of initial documents by the parties thereto.

Franchisee shall allow Century 21 to make inspections of Franchisee’s business and premises at any reasonably time, and will make its books and records available for inspection and audit, by Century 21 during normal working hours. Century 21 reserves the right to establish a uniform list of accounts and/or a uniform bookkeeping system for all of its Franchisees, and in such event, Franchisee agrees to maintain its books and records in the manner required by Century 21.

C. Franchisee shall not, during the term hereof, operate, manage, own, or have an interest, direct or indirect (as an officer, director, shareholder or otherwise), in any real estate brokerage business other than the business to be operated under this Agreement, without the prior written consent of Century 21.

D. Franchisee shall not advertise, publish or circulate any documents or other matter relating to the sale of real estate or the business to be transacted under this Agreement, except in compliance with the latest edition of the Century 21 policy manual. Any exception must receive prior written approval from Century 21.

E. All of the activities of Franchisee and its assistants, associates, salesmen, partners, co-venturers and employees in connection with the listing and sale of real estate and any other business or transactions conducted or entered into by said parties under the terms of this Agreement shall be exercised exclusively and solely in accordance with this contract, the latest Century 21 policy and procedure manuals and the laws of the State or District in which Franchisee's office is located. Franchisee shall comply with all laws, ordinances and regulations whether Federal, State, County, City or otherwise which in any way affect the operation of Franchisee's business. Franchisee agrees to comply with the Code of Ethics of all governing and applicable bodies and governments, including the Bylaws of any local Board of Realtors and any future amendments thereto. Franchisee shall not engage in any activity or practice which results or may be reasonably anticipated to result in litigation or in public criticism of Century 21 or the real estate brokerage profession generally

F. Franchisee shall indemnify and hold harmless Century 21, Century 21 Real Estate Corporation, a California corporation, and all other Century 21 Franchisees from all fines, suits, proceedings, claims, liabilities or actions of any kind or nature (including, but not limited to costs and reasonable attorney's fees) arising or growing out of or in any way connected to Franchisee’s operation of a real estate brokerage business.

Franchisee shall, prior to the opening of his Century 21 office and thereafter for the entire term of this Agreement, maintain at his expense general liability insurance in an amount not less than $200,000.00 covering one (1) person and an amount of not less than $500,000.00 covering more than one (1) person arising out of a single accident or transaction and for property damage of not less than $50,000.00. Said insurance shall insure Franchisee against any liability which may arise in connection with the operation of his real estate brokerage business. Franchisee shall also carry Workers' Compensation Insurance. All policies of insurance to be maintained by Franchisee shall contain a separate endorsement naming Century 21 and Century 21 Real Estate Corporation as additional insureds and shall not be subject to cancellation, except on ten (10) days written notice to Century 21. Franchisee shall cause certificates of insurance with a copy of all original policies attached, showing compliance with the above requirements to be deposited with Century 21.

G. Century 21 may establish a local council of Century 21 Franchisees in each local advertising area as determined by Century 21. In the event such a council is established in Franchisee's area, Franchisee agrees to join and participate in the council. The local council may make recommendations and suggestions concerning the expenditure of council funds available for promotional purposes in the local area. Such local council may adopt its own rules and procedures, but such rules or procedures shall not restrict Franchisee’s rights or obligations under this Agreement. Except as otherwise provided herein, and subject to the approval of Century 21, any action of such council at a meeting attended by two-thirds (2/3) of the members, including assessments for local promotion and advertising purposes, shall be binding upon Franchisee if approved by two-thirds (2/3) of the member franchisees present with each member office having one vote, no franchisee shall have more than 25% of the votes in a local council regardless of the number of offices owned.

Century 21 may also establish a regional council of Century 21 Franchisees in each regional area as determined by Century 21 and a national council of Century 21 Franchisees with boundaries as established by Century 21. Each regional council and the national council shall establish its own bylaws and procedures. Actions of the regional and national councils shall be binding upon Franchisee, provided, however, no council action shall modify the terms and conditions of this Agreement. Regional and National councils shall be composed of Century 21 franchisees who are elected on a representative basis by members of local or regional councils. Representatives to regional and national councils shall have voting power in proportion to the number of Century 21 franchisees in the area or region they represent. Century 21 shall not have a vote in any franchisee’s council.

Franchisee agrees that from time to time Century 21 may reasonably change or modify its system including, but not limited to, the modification or adop- tion of new or modified trade names, trade marks, service marks or copyrighted material, and Franchisee agrees to adopt, use and display for the purposes of this Agreement any such changes as if they were a part of the system at the time of the execution of this Agreement.

H. Any use of Century 21’s name, service mark, trade marks or copyrighted material by Franchisee shall inure to the benefit of Century 21.

13. RENEWAL:

Upon the expiration of the initial term hereof and upon the expiration of each five (5) years thereafter, so long as Franchisee shall not then be in default, Franchisee shall have the option to renew its franchise for an additional five (5) year term on such terms and conditions as are contained in new franchises then being granted by Century 21, provided, however, there shall be no renewal fee. Franchisee shall give Century 21 written notice of its intention to exercise the renewal option at least ninety (90) days prior to the expiration of the initial term and any renewal term hereof. Unless expressly altered or amended by the parties at the time of such renewal, all applicable terms and conditions of said agreement shall remain in effect during the renewal period.

14. TERMINATION:

This agreement is exclusive and may not be terminated except as provided herein. Termination of this Agreement shall not relieve Franchisee of any unfulfilled monetary obligations created hereunder, unless agreed to in writing by Century 21. This Agreement may be terminated for one or more of the following reasons:

A. Upon mutual written consent of the parties hereto.

B. At the option of Century 21 if Franchisee fails to perform any of his obligations under this Agreement, including, but not limited to, obligations created by the local, regional or national franchisee's councils, as more particularly set forth in Article 17.

C. Conviction of Franchisee or of any party employed by or working in Franchisee’s office, of any act which results in the revocation or suspension of Franchisee’s real estate license.

D. At the option of Century 21, nine (9) months after the death, insanity or appointment of a conservator or guardian of the person or estate of Franchisee, if Franchisee is an individual; nine (9) months after the death, insanity or appointment of a conservator or guardian of the person or estate of all of the general partners, if Franchisee is a partnership; or nine (9) months after the death, insanity or appointment of a conservator or guardian of the person or estate of the principal officer holding a real estate brokers license if Franchisee is a corporation; provided, however, this Agreement shall not terminate if within said nine (9) months period (1) this Agreement is assigned subject to paragraph 13 hereof to a licensed real estate broker approved by Century 21, or (2) if Franchisee is a partnership or corporation, a licensed real estate broker approved by Century 21 shall become a general partner or the principal corporate officer holding a real estate broker's license.

E. At the option of Century 21 if Franchisee fails to conduct and govern its business according to applicable and/or governing laws and ethics of any government or other body, including the bylaws of the local Board of Realtors or the laws, ordinances and regulations of the Federal, Provincial or Municipal Government.

F. In the event performance of a Franchisee falls below the minimum operating standards established by Century 21, Franchisee will be notified in writing setting forth each area of deficiency and at the option of Century 21, Franchisee shall be placed on probation for a period of not less than three (3) months nor more than six (6) months. If such deficiencies are not corrected within said probationary period, Century 21 may terminate this Agreement. The only minimum operating standard with respect to the volume of business done by Franchisee shall be 30% of the average gross income per Century 21 office in the same local council determined over the previous (6) month period. “Gross income” for the purpose of this paragraph shall mean all income and receipts on which a service fee is payable to Century 21.

G. At the option of Century 21, if Franchisee becomes bankrupt or insolvent, or if a receiver is appointed to take possession of Franchisee’s business or property or any part thereof, or if Franchisee shall make a general assignment for the benefit of his creditors.

On termination of this Agreement, all listings produced through the efforts of Franchisee or his staff shall remain the property of Franchisee. Upon termination of this Agreement through any cause whatsoever, Franchisee shall be entitled to 94% of all commissions due or which become due for real estate brokerage transactions then in process and Century 21 shall be entitled to the remaining 6%.

15. ASSIGNMENT:

This Agreement is personal, being entered into in reliance upon and in consideration of the singular skill, qualifications and representations of, and trust and confidence reposed in Franchisee, and Franchisee’s present partners or officers if Franchisee is a partnership or corporation, who will actively and substantially participate in the ownership and operation of the franchised business. Therefore, neither this Agreement nor any of its rights or privileges shall be assigned, transferred, shared or divided, by operation of law or otherwise, in any manner, without the prior, written consent of Century 21. Such consent shall not be unreasonably withheld and upon receipt of such consent Franchisee shall pay a transfer fee to Century 21 in the sum of $500.00.

A. RIGHT OF FIRST REFUSAL:

If Franchisee shall desire to assign his franchise, he shall serve upon Century 21 a written notice setting forth all of the terms and conditions of the proposed assignment, a financial statement prepared by the proposed assignee, and all other pertinent information concerning the proposed assignee. Within thirty (30) days after receipt of such notice, (or if Century 21 requests additional information, within fifteen (15) days after receipt of such additional information), Century 21 may either consent to the assignment or, at its option, accept the assignment to itself upon the terms and conditions specified in the notice. If Century 21 shall do neither, then consent to the assignment shall be deemed granted. Consent to an assignment upon the specified terms and conditions shall not be deemed to be a consent to an assignment upon any other terms or conditions, nor to any other person, nor to any other or subsequent assignment.

B. INCORPORATION:

If Franchisee is a sole proprietorship or partnership, Century 21 expressly consents to the assignment without payment of a transfer fee of this Franchise Agreement to a corporation formed, owned and controlled solely by Franchisee to operate the franchise business. If Franchisee is a corporation or if this Agreement shall be assigned to a corporation pursuant to the preceding sentence, any merger or sale or transfer of more than 40% of any one class of stock or any series of sales or transfers totalling in the aggregate 40% or more of any one class of stock in such corporate Franchisee, whether by operation of law or otherwise, shall be deemed an assignment of this Agreement requiring the prior written consent of Century 21.

16. REPRESENTATIONS:

No representations, promises, guarantees or warranties of any kind are made by Century 21 to induce Franchisee to execute this Agreement except as specifically set forth in writing in this Agreement. Franchisee acknowledges that the success of the real estate brokerage office to be established pursuant to this Agreement is dependent upon the personal efforts of Franchisee or Franchisee’s partners or officers, if Franchisee is a partnership or corporation. Unless otherwise approved in writing by Century 21, Franchisee (or the officers or partners of Franchisee, if Franchisee is a corporation or partnership) shall devote his full time to the man- agement of the real estate brokerage office to be established. Franchisee acknowledges that neither Century 21 nor any other party has guaranteed Franchisee success. Franchisee represents to Century 21 that this franchise is not being acquired on speculation, and that Franchisee has no present intention to attempt to sell or transfer its business.

17. REMEDIES FOR BREACH:

If Franchisee shall violate or omit to perform any of the terms and conditions contained herein, or if Franchisee’s office or offices shall become vacant, abandoned or deserted, Century 21 or its authorized agent may, in addition to any other remedies it may have under this Agreement, at law or in equity, remove all Century 21 identification without incurring any liability therefor.

Franchisee expressly consents and agrees that Century 21 may, in addition to any other remedies, obtain an injunction or the appointment of a receiver for franchised business to terminate or prevent the continuation of any existing default, or to prevent the occurrence of any threatened default by Franchisee of this or any related agreement.

Upon any such default by Franchisee, Century 21 may give Franchisee ten (10) days notice of its election to terminate the Franchise Agreement if the default specified in the notice is not cured within that time.

18. ATTORNEY'S FEES:

If any legal action shall be instituted to interpret or enforce the terms and conditions of this Agreement, the prevailing party shall be entitled to recover reasonable attorney's fees.

19. AMENDMENT:

Any modification or change in this Agreement must be in writing, executed by an officer of Century 21. No field representative of Century 21 has the right or authority to make oral or written modifications of this Agreement, and any such representations shall not be binding upon either party hereto.

20. WAIVER:

No waiver of any breach of any condition herein shall constitute a waiver of any subsequent breach of the same or any other condition.

21. AUTHORITY AND ACCEPTANCE:

Each of the undersigned parties warrants that he has full authority to sign and execute this Agreement. If Franchisee is a corporation or partnership, the individuals executing this Agreement in behalf of such corporation or partnership warrant to Century 21 both individually and in their capacities as partners or officers that all of the partners in the partnership or all of the shareholders of the corporation have read and approved this Agreement including any restrictions which this Agreement places upon their right to transfer their interests in the partnership or corporation. The Agreement shall become valid on the date it is accepted by Century 21. Century 21 will notify Franchisee of such acceptance by sending Franchisee a copy of the Agreement executed as hereinabove provided. If this Agreement is not accepted by Century 21 within fifteen (15) days of receipt, then all monies paid hereunder shall be returned to Franchisee. This Agreement can only be accepted and be binding upon Century 21 by the execution hereof by Samoth Corporation Limited under seal.

22. CONSTRUCTION:

This Agreement shall be construed according to the laws of the Province of

If any provisions of this Agreement are or shall become in conflict with laws, ordinances or regulations of any jurisdiction in which the franchised location is situated, said provisions shall be automatically deleted and the remaining terms and conditions of this Agreement shall remain in full force and effect, provided such deletions can be made without materially affecting the basic agreement and relationship between the parties hereto. If such deletions cannot be made without materially affecting the basic agreement and relationship between the parties hereto, this Agreement may be terminated by either party hereto and in such event the parties agree to negotiate in good faith to establish a new agreement which is not in conflict with any applicable laws, ordinances or regulations.

Article or paragraph headings are for reference purposes only and shall not in any way modify or limit the statements contained in any article or paragraph. All words in this Agreement shall be deemed to include any number or gender as the context or sense of this Agreement requires.

23. BINDING ON SUCCESSORS:

This Agreement is binding upon and shall inure to the benefit of the parties hereto, their heirs, successors and assigns. Century 21 reserves the right to assign, pledge, hypothecate or transfer this Agreement, provided that such assignment, pledge, hypothecation or transfer shall not affect the rights and privileges granted to Franchisee herein.

24. NOTICES:

Any notices to be given hereunder shall be in writing, and may be delivered personally, or by registered mail, with postage fully prepaid.

Any notice delivered to Century 21 shall be addressed to Century 21,

at

The address specified herein for service of notices may be changed at any time for any party by giving written notice to the other.

Any notice to Franchisee shall be delivered to the address set forth on page one of this Agreement or to the address of Franchisee's office.

25. EXCLUSIVE PROPERTY:

The form and content of this contract are the exclusive property of Century 21 Real Estate Corporation and may not be reproduced in part or in whole by Franchisee or others.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the date first set forth above.

FRANCHISEE:

By:

(Corporate Seal)	By:	—
ACCEPTED on this	day of	, 197
	FRANCHISOR: CENTURY 21 REAL ESTATE
	LIMITED, a division of SAMOTH
	CORPORATION LIMITED
	By:
(Corporate Seal)	By :
Century 21 Representative