Franchise Article Series: Franchise Disclosure Document
The following article is part one of a series of articles that document some key considerations about franchising including some of the pitfalls and opportunities which our firm has seen and advised upon over the past two years. For a full .pdf version of this article, please click here.
On February 1, 2019 two years will have passed since the British Columbia Franchises Act came into force. Since the enactment of the legislation, our Franchise Law Team at Pushor Mitchell has assisted both franchisors and franchisees in working with and ensuring they are compliant with the Franchises Act. This article is the first in a series of articles that documents some key considerations about franchising that we have seen over the past two years.
One of the main features under the Franchises Act has been the implementation of a Franchise Disclosure Document. The Franchise Disclosure Document is intended to summarize all material facts regarding the franchise. A material fact is defined as any information about the business, operations, capital or control of the franchisor or franchisor’s associate, or about the franchise that would reasonably be expected to have a significant effect on the value or price of the franchise to be granted or on the decision to acquire the franchise. The Franchises Regulation specifically sets out the requirements of the type of information that must be included in a Franchise Disclosure Document. This includes, but is not limited to:
- financial statements of the franchisor;
- business information about the franchisor and its directors; and
- a summary of the franchisee’s costs and obligations.
The rationale behind a Franchise Disclosure Document is to ensure a prospective franchisee has all the information deemed necessary to make a fully informed decision on whether to proceed with the purchase of the franchise. The Franchise Disclosure Document must be provided by a franchisor to a franchisee at least 14 days before the parties enter into a franchise agreement. A Franchise Disclosure Document can be delivered personally or by email. However, it is important to emphasize that a Franchise Disclosure Document must be delivered as one complete document and delivered at one time. Legally, it is not adequate for a franchisor to provide the Franchise Disclosure Document to a prospective franchisee and then follow up with attachments and additional information at a later time. This is a common pitfall for franchisors, who will sometimes provide the Franchise Disclosure Document to a prospective franchisee and then follow up (sometimes days later) with the financial statements or other schedules that should have originally been included.
The Franchises Act provides that the failure to provide a complete Franchise Disclosure Document may grant franchisees with a right to rescind the franchise agreement within 60 days after receiving a Franchise Disclosure Document if the contents did not meet the requirements under the Franchises Act. If a franchisor never provided the franchisee with a Franchise Disclosure Document the franchisee has the ability to rescind the franchise agreement within two years.
We are happy to help franchisors prepare their Franchise Disclosure Document to ensure that the document meets the requirements under the Franchises Act and Regulation. We can also assist prospective franchisees in reviewing a Franchise Disclosure Document to determine if the document contains the appropriate information to make a fully informed decision about the franchise. Please contact Patrick or another member of our Franchise Law Team.
Patrick Bobyn is a business and real estate lawyer at Pushor Mitchell LLP who acts for both franchisors and franchisees. You can reach Patrick at 250-869-1286 or firstname.lastname@example.org. For more information on our Franchise Law Team, please visit http://www.pushormitchell.com/service/franchising