The Franchise Disclosure Document (FDD) is an essential source of information in the franchise agreement process, but not every province in Canada requires franchisors to provide disclosure documents. Know what to expect in your province or territory so that you can successfully grow your franchise business.
A comprehensive FDD will typically outline the history of the business, fees, rules and restrictions, all the franchisees in a system, turnover rates, renewal terms and other aspects of a franchise.
However, though some franchisors offer FDD’s voluntarily, not all provinces and territories require franchisors to provide prospective franchisees with disclosure documents. While there are federal laws that can apply to franchising, such as income tax, competition, and intellectual property statutes, it is left to the provincial level to enact stricter regulations on the franchising of a business.
Six of Canada’s provinces have enacted legislation to regulate franchising, designed both to protect franchisees and limit the burdens on the franchisor. Important pieces of these legislation are summarized below:
Alberta Franchises Act
The Alberta Franchises Act requires franchisors to deliver a franchise disclosure document to franchisees at least 14 days before the prospective franchisee signs an agreement or makes a non-refundable payment relating to the franchise.
The disclosure document is required to include financial statements and material facts, including information about the franchisor, obligations of the franchisee, fees and initial investment costs, the franchisor’s financial statements, territorial considerations, restrictions on products and supplies, a list of current franchisees operating in Alberta, and details of any earnings claims.
British Columbia Franchises Act
The British Columbia Franchises Act sets out disclosure document requirements similar to those of the Alberta Franchises Act. Notably, the BC Act specifies what information a franchisor must provide regarding dispute resolution processes, a description of its policies and practices regarding guarantees and security interests, and the disclosure document must include information about required federal and provincial license, registrations and authorizations necessary for the franchisee to operate the franchised business.
Manitoba Franchise Act
The Manitoba Franchise Act is unique from other provincial acts in that it allows for disclosure documents to be delivered in parts, in certain circumstances. In order for the franchise disclosure document to be delivered in parts, the required “risk warnings” must be provided to the franchisee first; information about the franchisor, information about the franchise, and lists of franchisees must be provided in groups; the franchisor must include a specifically-worded statement at the beginning of every delivered part of the disclosure; and the signed certificate of the franchisor is to be included in the last part of the disclosure. A 14-day cooling off period begins only after the last document has been delivered to the franchisee.
New Brunswick Franchises Act
New Brunswick’s Franchises Act has two regulations regarding franchising: the first pertains to disclosure documents, and the second to mediation. The franchise disclosure document regulation sets out requirements for disclosure documents similar to the legislation in other provinces. The New Brunswick Franchise Act allows disclosure documents prepared for use in other jurisdictions to be used in New Brunswick provided they comply with the Act’s regulations. The document must also include the table of contents of any manual provided or a statement specifying where the manual is available for inspection. In addition to providing a list of current franchisees, the document must also include a list of other businesses operated by the franchisor located in New Brunswick.
The mediation procedure regulation aims to ensure good faith and fair dealings in the franchise agreement. Under this Act, a confidentiality agreement does not qualify as a franchise agreement for the 14 day disclosure period, permitting franchisors to enter into limited confidentiality agreements with franchisees during this period. The unique feature about this act is its party-initiated dispute resolution process, which allows for 15 days for parties involved to resolve the dispute before attempting to mediate following the rules set out in the mediation regulation.
Ontario’s Arthur Wishart (Franchise Disclosure) Act
Ontario’s act is similar to the Alberta Franchises Act except for a few points: Under the Arthur Wishart (Franchise Disclosure) Act, there are no residency requirements for the franchisee, and the franchisee is not allowed to make any payments within the 14 day period, even if the payments are fully refundable.
Under this Act, the franchisee may rescind the franchise agreement if the franchisor fails to provide the full and accurate disclosure document in the allotted time, and the franchisee may rescind the franchise agreement without penalty within two years after entering into the agreement if the franchisor never provided a disclosure document.
Prince Edward Island’s Franchise Act
Prince Edward Island’s Franchise Act is similar to that of Ontario. It is modeled after the Uniform Law Conference of Canada’s Uniform Franchises Act, so it contains additional provisions extending the duty of fair dealing to apply to the exercise of a right under a franchise agreement, and it permits the use of confidentiality and territory reservation agreements prior to the delivery of a franchise disclosure document.
Prospective franchisees are encouraged to explore these Acts in their entirety and seek legal counsel in order to fully understand the nuances of each Act.