The British Columbia new franchises act and franchises regulation: A primer: the franchises act and franchises regulation significantly change the law regarding franchising in British Columbia. BC franchisors now have mandatory disclosure obligations and failure to comply can give franchisees potent rights and remedies.
Unlike the franchise legislation in certain jurisdictions in the United States, the BC Franchises Act does not aim to regulate the relationship between franchisors and franchisees, other than by imposing a statutory duty of fair dealing, and does not provide for any regulatory oversight of franchising. Instead, the act establishes mandatory disclosure obligations for franchisors and provides statutory remedies for franchisees for circumstances where franchisors fail to comply with the requirements of the legislation.
These sorts of obligations, rights and remedies are all features of the legislation in Alberta, Manitoba, Ontario, New Brunswick and Prince Edward Island. As a result, franchising in British Columbia, like in other Canadian jurisdictions, effectively continues to be a self-governing industry.
14-DAY DOCUMENT DEADLINE, MATERIAL FACTS
The most significant feature of the new act and regulation is that franchisors in British Columbia are now required to provide prospective franchisees with a disclosure document at least 14 days before entering into a franchise agreement or accepting any payment from a prospective franchisee.
The act requires that the disclosure document contain certain mandatory risk warning statements, information about the franchisor and its directors, officers and general partners, financial statements for the franchisor (unless the franchisor is exempt from this requirement) and certain prescribed information about the franchise system and the franchise being offered.
In addition, the disclosure document must also provide an accurate, clear and concise summary of all "material facts" relating to the franchise being offered.
Delivery may be effected by email or pre-paid courier; however, if a disclosure document is to be delivered by way of a prepaid courier, the franchisor must ensure that the method of delivery allows for tracking and confirmation of receipt of the disclosure document by the prospective franchisee, which is not a requirement in the other provinces that provide for delivery by prepaid courier.
The new act defines a material fact as "any information about the business, operations, capital or control of the franchisor or franchisor's associate, or about the franchise or the franchise system, 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." Given the broad scope of this definition, franchisors must think carefully about the facts that are likely to be material with respect to each franchise being offered, and make sure that the disclosure document provided to a prospective franchisee covers all material facts (including any site-specific information about the franchise being offered).
If a franchisor becomes aware of a material change after providing a disclosure document to a prospective franchisee, the franchisor will be required to provide the prospective franchisee with a written statement of material change before the franchisee signs the franchise agreement or any other agreement relating to the franchise.
A material change is similar to a material fact, except that a material change is restricted to facts that would reasonably be expected to have a "significant adverse effect" on the value or price of the franchise to be granted or on the prospective franchisee's decision to acquire the franchise. The franchisor will be required to provide the statement of material change to the prospective franchisee as soon as practicable after the change occurs.
RESCISSION RIGHTS, DAMAGES
The Franchises Act provides statutory rescission rights to franchisees, which they can exercise if a franchisor fails to comply with its disclosure obligations under the act. If a franchisor fails to provide a disclosure document at least 14 days before entering into a franchise agreement with a prospective franchisee, or the contents of the disclosure document do not meet the requirements of the act, the franchisee may rescind the franchise agreement within 60 days after receiving the disclosure document. If a franchisor provides no disclosure document at all, the franchisee may rescind the franchise agreement within two years after the date the franchise agreement was signed.
In addition, the act provides franchisees with a right of action for damages if they suffer a loss as a result of a misrepresentation contained in a disclosure document or as a result of a franchisor's failure to comply with the disclosure requirements. This right of action is exercisable against the franchisor and others, including the franchisor's broker and any person who signed the disclosure document.
Like the franchise legislation in Alberta, Manitoba, Ontario, New Brunswick and Prince Edward Island, the Franchises Act expressly protects franchisees' rights to associate with each other, prohibits any waiver of a franchisee's rights under the legislation and restricts parties' ability to avoid the application of the legislation by restricting jurisdiction to a forum outside the province.
Like the franchise regulations in Alberta, Manitoba, New Brunswick and Prince Edward Island, the BC Franchises Regulation provides that a franchisor may use a disclosure document that complies with the requirements of another Canadian disclosure jurisdiction for the purposes of providing franchise disclosure in British Columbia. While this may come as welcome news for franchisors who are doing business in one of the other disclosure provinces, it is important to ensure that any disclosure document intended for use in British Columbia meets all of the requirements of the Franchises Act and the Franchises Regulation.
ADDITIONAL INFORMATION REQUIREMENT
In this regard, it is important to note that the Franchises Regulation requires additional information to be disclosed about certain matters that is not required in any of the other five disclosure provinces. This includes additional information about any dispute resolution provisions contained in the franchise agreement, the frequency of a franchisee's required contribution to any advertising, marketing, promotion or similar fund, and a list of all franchisees in Canada. The Franchises Regulation also requires franchisors to include a specific British Columbia form of certificate in the disclosure document.
The Franchises Act and Franchises Regulation significantly change the law regarding franchising in British Columbia.
As noted above, franchisors in British Columbia now have mandatory disclosure obligations and failure to comply with them can give franchisees a number of potent rights and remedies. Franchisors who are doing business in British Columbia or who are considering expanding into British Columbia should consult with experienced franchise counsel to ensure that they are up to speed with the requirements of the Franchises Act and the Franchises Regulation.
BY MATTHEW SWANSON AND ERIC LITTLE
Matthew G. Swanson is a partner at Borden Ladner Cervais LLP who practices commercial litigation with an emphasis on franchise and distribution law.
Eric C. Little is an associate at BLG who practices corporate commercial law with an emphasis on franchising, licensing and distribution.
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|Comment:||The British Columbia new franchises act and franchises regulation: A primer: the franchises act and franchises regulation significantly change the law regarding franchising in British Columbia. BC franchisors now have mandatory disclosure obligations and failure to comply can give franchisees potent rights and remedies.(INTERNATIONAL)|
|Author:||Swanson, Matthew; Little, Eric|
|Date:||May 1, 2017|
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