Updated September 2024
Prince Edward Island’s Franchise’s Act fully took effect on January 1, 2007, making it the third province behind Alberta and Ontario to have laws specific to franchising. It’s up to each individual province in Canada to create and administer franchise laws. As of now, the following six of the ten Canadian provinces currently have franchising regulations:
- Alberta
- British Columbia
- Manitoba
- New Brunswick
- Ontario
- Prince Edward Island (PEI)
Regulations specific to franchising are in the best interests of both parties as they promote fairness and transparency between the franchisor and franchisee. In fact, Prince Edward Island’s franchising regulation was created due to complaints from some islanders who bought franchises from off-Island companies and felt they were being treated unfairly by those companies.
What is Included in the Prince Edward Island’s Franchises Act?
Franchise Disclosure Document (FDD)
Just like other provinces with franchising legislation, franchisors are required to provide a disclosure document to prospective franchisees operating partly or wholly in PEI. They must provide it no less than 14 days before the signing of a franchise agreement or the payment of money.
The franchise disclosure document has to disclose all material facts, including:
- risk warnings,
- the business background of the franchisor,
- the business background of directors, general partners and officers,
- previous convictions and pending charges of any of the directors, partners or officers,
- administrative orders and proceedings,
- civil actions and liabilities and any bankruptcies the franchisor has been involved with,
- costs and fees of establishing the franchise,
- the franchisor’s financial statements (unless the franchisor qualifies for an exemption),
- an estimate of the operating costs and earnings projection,
- information on financing, training and advertising,
- purchase and sale restrictions,
- information about rebates, commissions, payments or other benefits,
- information pertaining to territory and proximity to other franchisees or businesses associated with the franchisor
- information about trademarks and other proprietary rights,
- what personal participation is expected from the franchisee in the franchise,
- information about termination, renewal and transfer of the franchise,
- information about dispute resolution within the franchise system and
- a list of all current and former franchisees.
If the franchisor does not disclose the required information in the time allotted, the franchisee is entitled to rescind the franchise agreement. The timeline for this is:
- Up to 60 days after receiving an incomplete disclosure document or;
- Two years after entering into the franchise agreement if the franchisor failed to provide a disclosure document at all
If a franchise agreement is rescinded, the franchisor must do the following:
- Refund to the franchisee any money that it received from the franchisee
- Purchase back supplies and inventory that were required by the franchise agreement
- Compensate for any losses incurred in acquiring, setting up, and operating the franchise
- If applicable, provide the franchisee with a “right of action” for damages suffered because of misrepresentations in the FDD or the franchisor’s failure to disclose
Duty of Fair Dealing
Duty of Fair Dealing is “a rule used by most courts in the United States that requires every party in a contract to implement the agreement as intended, not using means to undercut the purpose of the transaction” (Cornell Law School).
The Franchises Act also imposes a duty of fair dealing on both franchisors and franchisees operating within PEI in the performance and enforcement of the franchise agreement. This includes a right of action for damages against another party to a franchise agreement who breaches the duty of fair dealing.
5 Unique Elements of the Prince Edward Island’s Franchises Act
#1 – Small Jurisdiction Application
Prince Edward Island is the least populated province in Canada. Given the island’s small geographic and population size, the Franchises Act is especially important in safeguarding local business owners. It does this by balancing the power dynamics between franchisors and franchisees in a smaller economic ecosystem.
#2 – Right to Associate Enhanced
The act also gives franchisees the right to associate with other franchisees and form or join an organization of franchisees. This is noteworthy because smaller provinces tend to have tighter-knit business networks where associations and collective actions are more likely to happen.
#3 – Localized Jurisdictional Protection
The Franchises Act also includes a jurisdiction clause stipulating that all franchise agreements are governed by PEI law. This protects PEI franchise owners from having to handle their disputes in external jurisdictions that might not be as favorable to local business owners.
#4 – Cooling-Off Period Flexibility
Franchisees also have the flexibility to cancel the agreement if the FDD was insufficient or incomplete. This built-in protection gives franchisees the chance to back out if they feel unduly pressured, which is crucial in PEI’s small market environment.
#5 – Simplified Procedures for Franchise Transfers
The act includes streamlined procedures to facilitate franchise transfers in small communities. This is particularly relevant in PEI since franchises might change hands more frequently in smaller markets.
Looking to Buy a Franchise on Prince Edward Island?
No matter which province you want to buy a franchise in, FranNet is here to help. Our expert franchise consultants will evaluate your goals and abilities and match you with the perfect opportunity. We’ll walk you through the entire process answering all of your questions along the way. Schedule your free consultation to get started!