Last month, we looked at an overview of Alberta’s franchising legislation. Alberta is one of six provinces with a law pertaining to franchising. The other provinces with such laws are:
- British Columbia
- New Brunswick
- Prince Edward Island
None of the territories have franchising legislation.
This month, we will look at a quick overview of the British Columbia Franchises Act, which came into effect in February of 2017, making it the most recent province to have legislation specific to franchises. The law requires franchisors to supply a Franchise Disclosure Document (FDD) to all prospective franchisees within the province.
The FDD discloses all material facts relating to the franchised business so potential franchisees can make a more informed decision about buying a franchise location with the company.
Some of the items that must be included in the FDD are:
- warning statements about the risks associated with entering into the franchise agreement;
- the franchisor’s business background, including the name under which the franchisor is doing business and the franchisor's business address;
- the business background of the franchisor’s directors, officers and general partners, including their names, current positions, and previous business experience;
- a description of the business opportunity itself;
- a description of the franchise agreement’s restrictions or requirements regarding the dispute resolution process;
- a list of all fees and costs a franchisee must pay to acquire and operate a location;
- details of any litigation involving the franchisor or its affiliates;
- a description of any territory granted;
- a list of the current franchisees operating in Canada;
- a list of franchise closures over the past three years;
- a list of any former franchisees that left the franchise system in the prior fiscal year;
- details of the franchisor’s advertising fund, specifying the franchisee’s required contribution, the plan for the fund’s administration and whether franchisees will be entitled to reports on the franchisor’s advertising activities;
- a description of the training program for new franchisees and any associated fees;
- any licenses, registrations, authorizations or other permissions required of the franchisee;
- a list of existing and former franchisees for prospects to contact.
In addition to that, audited or reviewed financial statements must also be included along with copies of any and all contracts the prospective franchisee will be required to sign.
Deposits and Confidentiality Agreements
On the franchisor’s side, the BC law enables them to accept refundable deposits from prospective franchisees and they can also require their franchisee prospects to sign confidentiality agreements prior to them delivering the FDD and waiting for the mandatory 14-day cooling off period to expire.
FDDs in the province of BC won’t be automatically invalidated by a technical error or a defect that doesn’t actually affect the substance of the document. As long as the substance remains intact, the agreement will also remain intact. FDDs can also be electronically delivered for maximum convenience.
FDD Annulment and Litigation
If regulations pertaining to the act have been breached, franchisees will be protected. Depending on the circumstances, a franchisee may be privy to having the franchise contract annulled and getting all of the money they’ve put into the business back, plus any losses. Something like this may happen if a franchisor makes a material misrepresentation in the sales process or fails to disclose a material fact required in the FDD or fails to provide an FDD altogether.
The law also requires any litigation brought on a BC-based franchisee to be carried out in BC under BC law. This is to prevent a BC-based franchisee from being sued under another province’s laws and costing that franchisee significant travel costs to fight litigation in other provinces.
Right to associate
BC’s new act provides franchisees with the right to associate with each other and prohibits franchisors from trying to restrict this right. For example, franchisees who are involved with a class action lawsuit against a franchisor can freely associate with each other and not have to worry about having that right infringed upon.
Now that BC has franchising legislation in place, that makes six provinces that have laws on the books specific to franchises. No matter what province you want to join a franchise in, FranNet can help you find the right one. Sign up for a free FranNet franchise search and consultation today and let us help you find your perfect franchising match.