Before you franchise your restaurant in Canada, you need to know about disclosure documents

		Leave a comment

Successful franchising is all about consistency and uniformity, but creating that experience for a customer, no matter where they are located, does not happen by accident.  A franchisor has to exercise a considerable amount of control over its franchisees to recreate that experience, and with that great power comes great responsibility.

In recognition of this inherent imbalance of power in the franchise relationship, five provinces (to date) have enacted franchise legislation to ensure that franchisees’ rights and interests are adequately protected (Ontario, Alberta, Prince Edward Island, New Brunswick and Manitoba, with British Columbia on its way), and the centerpiece of each is the franchise disclosure document (FDD).

The FDD is a compendium of information about the franchisor, the franchise system and the franchise offering that is designed to assist a franchisee in making an informed investment decision about a business where someone else will have so much of that aforementioned control.  

And here is one of the most important things to remember – in the provinces where a franchisee is required to receive an FDD, that franchisee has a 14-day cooling off period during which a franchisor cannot require that franchisee to sign any agreement relating to the franchise or pay any money to it.  During that protected 2-week stretch, a franchisee should be consulting with its legal and financial advisors, as well as friends and family, to make sure that the franchise opportunity they are about to invest in is one that makes sense.

Since franchise law exists primarily for the protection of franchisee rights, a franchisor faces severe penalties if it doesn’t comply with the various disclosure requirements.  Specifically, if a franchisor has a franchisee sign something or pay something in advance of the franchisee receiving an FDD or before the 14-day cooling off period has expired, the franchisee may have up to 60 days from the date it made the payment or signed the agreement to rescind its franchise agreement. 

Going further, if the franchisee never received an FDD at all, or received an FDD that was so deficiently prepared that it was equivalent to a franchisee never receiving an FDD at all, the franchisee may have up to 2 years to rescind its franchise agreement.