The Franchise Disclosure Document (FDD) is a legal document that offers key information to help potential franchisees make an informed decision. While this document is exceedingly helpful for a prospective franchisee in choosing which franchise opportunity to pursue, it is not required in every Canadian province. Whether it’s required or not, it is recommended as best practice in Canada’s thirteen provinces for a franchisor to provide future franchisees with an FDD before they make any commitments. After all, it’s in the best interest of everyone involved if the franchisor is able to set the franchisee up for success, and one way to do this is with a Franchise Disclosure Document.
Which Provinces Require Franchise Disclosure Documents?
A Franchise Disclosure Document is not required in every Canadian province, but there are six provinces that have enacted specific franchise legislation: Alberta, British Columbia, Manitoba, New Brunswick, Ontario, and Prince Edward Island.
Alberta Franchises Act
The Alberta Franchises Act, in effect since January 01, 2002, states that a “franchisor must give every prospective franchisee a copy of the franchisor’s disclosure document”. The specific requirements are as follows:
- Must present the FDD 14 days before the potential franchisee signs “any agreement relating to the franchise” or makes a “payment of any consideration…relating to the franchise”, whichever comes first
- The FDD should include –
- Financial statements
- Relevant information about the franchisor
- Franchisee responsibilities
- Costs related to fees and the initial investment required
- Territorial considerations
- Product and supply restrictions
- A list of existing franchises in Alberta
- Data related to earning claims
To learn more about the Alberta Franchises Act, check out our blog: A Look at Provincial Legislation for Protecting Franchisees: Alberta
British Columbia Franchises Act
The British Columbia Franchises Act, established on November 17, 2015, is similar to Alberta’s franchise-specific legislation when it comes to the requirement and timeframe of an FDD. However, it also includes differences such as:
- Document defects & irregularities – If the FDD contains a technical error, it will not affect its validity as long as the document’s substance remains accurate and compliant with the province’s legislation.
- Waivers & releases – While these are generally invalid, the FDD states that releases in connection with franchisees settling a particular legal action, claim, or dispute are not considered void.
- Confidentiality & site selection agreements – While the franchisor must deliver the FDD at least 14 days before the potential franchisee signs an agreement, there are some confidentiality and site selection agreements that may be signed before the FDD is delivered.
- How franchisors may accept deposits – So long as it meets specific requirements, a franchisor can receive a deposit from a potential franchisee at any point. The requirements are:
- The deposit should not be greater than 20% of the initial franchise fee
- The deposit should be returnable if the franchise agreement is never signed
- The deposit should provide no obligation to sign the franchise agreement
Read more about the British Columbia Franchises Act here: A Look at Provincial Legislation for Protecting Franchisees: British Columbia
Manitoba Franchise Act
The Manitoba Franchise Act, effective since October 1, 2012, has the same objectives as legislation in other provinces, which is to help potential franchisees make an informed decision. However, one main difference is that a franchisor can provide the FDD in pieces instead of one whole document provided it is done in a certain order. The 14-day period before signing the franchise agreement starts after the last document is delivered.
Read the following blog to learn more about how the FDD should be delivered per the Manitoba Franchise Act: A Look at Provincial Legislation for Protecting Franchisees: Manitoba
New Brunswick Franchises Act
The New Brunswick Franchises Act, deposited December 30, 2014, legislates the FDD and it provides a mediation regulation.
A couple of unique aspects of New Brunswick’s FDD regulation are:
- It allows the use of an FDD prepared in other jurisdictions so long as it complies with New Brunswick’s legislation.
- The franchisor must include a list of other businesses they operate in New Brunswick (in addition to a list of existing franchisees).
The purpose for a mediation section is to provide a dispute resolution process to ensure fair dealings. The regulation allows for a party-initiated dispute resolution process, which gives both parties 15 days to resolve their dispute before engaging in formal mediation as laid out in the province’s legislation.
For further reading on New Brunswick, check out our blog post: A Look at Provincial Legislation for Protecting Franchisees: New Brunswick
Ontario’s Arthur Wishart (Franchise Disclosure) Act
Ontario’s Arthur Wishart (Franchise Disclosure) Act, first initiated in 2001, is similar to other regulatory acts with a few unique features including:
- There are no residency requirements for the franchisee
- Payments are not permitted within the 14-day period
- A provision for the franchisee to rescind the agreement if the FDD is not provided on time or is inaccurate. If the FDD is never provided, the franchisee has up to two years to void the agreement.
Read our blog post for more details about Ontario’s franchise regulations: A Look at Provincial Legislation for Protecting Franchisees: Ontario
Prince Edward Island’s Franchise Act
Prince Edward Island’s Franchise Act went into full effect on January 1, 2007. It is similar to Ontario’s franchise legislation with a couple additions:
- The “duty of fair dealing” is extended as a right in the franchise agreement.
- Confidentiality and territory reservation agreements are allowed before the FDD is delivered.
Read this blog post for more detailed information: A Look at Provincial Legislation for Protecting Franchisees: Prince Edward Island
The Benefits of Providing a Franchise Disclosure Document
Even though an FDD is not legally required in every Canadian province, it falls under best practice because it benefits both parties.
Advantages for the prospective franchisee:
- Levels the playing field as all potential franchisees will receive the same information
- Helps franchisee candidates make an informed decision regarding what is likely a large investment
Advantages for the franchisor:
- Standardizes the approach in the sales process, which makes less room for confusion later on
- Avoids legal actions due to misinterpretations under common law
FDDs help potential franchisees make an informed decision, which sets them up for success. Ultimately, the franchisor wants to see its franchisees succeed, which is why FDDs are strongly recommended.
Are You Looking to Own a Franchise in FDD Regulated Provinces?
If you are in an FDD regulated province, you should certainly explore the legislation in detail and seek legal counsel to fully understand the nuances. However, no matter where you are from in Canada, FranNet can guide you through the process of buying a franchise, which includes helping you find an attorney or any other necessary advisors. We are your one-stop shop for providing all the resources you need, and you won’t need to pay us a dime. Schedule your free consultation to get started on the path to owning a franchise!