Franchise legislation in Alberta: what you should know.
The Franchises Act of Alberta applies to the sale of a franchise in Alberta if the franchise business is to be operated either partly or wholly in Alberta and if the purchaser of the franchise is an Alberta resident or has a permanent establishment in Alberta for the purposes of the Alberta Corporate Tax Act. A franchise is defined in the Act as follows:
"franchise" means the right to engage in a business
(i) in which goods or services are sold or offered for sale or are distributed under a marketing or business plan prescribed in substantial part by the franchisor or its associate;
(ii) that is substantially associated with a trademark, service mark, trade name, logotype or advertising of the franchisor or its associate or designating the franchisor or its associate; and
(iii) that involves
(A) a continuing financial obligation to the franchisor or its associate by the franchisee and significant continuing operational controls by the franchisor or its associate on the operations of the franchise business, or
(B) the payment of a franchise fee, and includes a master franchise and subfranchise.
The definition of franchise in the Act therefore requires three elements:
1. A marketing or business plan;
2. A trade mark, service mark, trade name, logotype or advertising of the franchisor; and
3. Either a continuing financial obligation by the franchisee to the franchisor or the payment of a franchise fee.
Section 4 of the Act imposes a duty upon a franchisor to give every prospective franchisee a copy of the franchisor's disclosure document. The disclosure document must be received by the prospective franchisee at least fourteen days before the signing by the prospective franchisee of any agreement relating to the franchise or the payment of any consideration by the prospective franchisee relating to the franchise, whichever is earlier. The disclosure document must contain all proposed franchise agreements, copies of financial statements (subject to certain exemptions granted by the Regulations), and certain material facts that are set out in detail in the Regulations such as basic personal and corporate information pertaining to the franchisor; any criminal charges, civil litigation and bankruptcy proceedings against the franchisor; all fees, investment and financing arrangements that are required; history of any franchise closures; and the franchisor's policy and exclusive franchisee territory.
The disclosure document must also include a certificate that states the following:
"The information in the disclosure document, or in any changes made in respect of the disclosure document,
(a) contains no untrue information of a material fact,
(b) does not omit to state a material fact that is required to be stated, and
(c) does not omit to state a material fact that needs to be stated in order for the information not to be misleading."
This certificate must be dated and signed by at least two (2) officers or directors of the franchisor or a combination of them totalling at least two (2) if the franchisor has two or more directors or officers, if the franchisor has only one (1) director or officer, then by that person, or if the franchisor is not a corporation by the franchisor.
Section 7 of the Act imposes on each party to the franchise agreement a fair dealing in its' performance and enforcement.
The Act gives a franchisee a private right of action for damages against the franchisor and every person who signs the disclosure document if the franchisee suffers a loss because of a misrepresentation contained in the disclosure document. The Act provides that if a disclosure contains a misrepresentation then the franchisee who purchases a franchise to which the disclosure document relates is deemed to have relied on the misrepresentation. The Act also contains defenses that the franchisor or every person who signed the disclosure document may rely upon in the franchisee's misrepresentation action under the Act. In addition, if the franchisor fails to give the prospective franchisee the disclosure document by the time period stated in the Act, the prospective franchisee may rescind all the franchise agreements by giving a notice of cancellation to the franchisor or its associate, no later than sixty days after receiving the disclosure document or no later than two years after the franchisee is granted the franchise, whichever occurs first. Such notice of cancellation operates to cancel the franchise agreements or in the case of an agreement that is an offer to purchase, to withdraw the offer to purchase. The Act also specifically states that the rights of action conferred by the Act are in addition to and do not derogate from any other right the franchisee or franchisor may have at law.
The Franchises Act of Alberta provides protection to prospective franchisees by requiring franchisors to provide a disclosure document to franchisees in a timely manner and by providing several remedies to franchisees for breaches of the Act.
May L. Yu is a corporate/commercial lawyer with the firm of Ogilvie and Company in Edmonton, Alberta.
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|Author:||Yu, May L.|
|Date:||Feb 1, 1997|
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