Proposed Amendments to Franchise Legislation

 In Business Law

The Government of Ontario is proposing to amend the rules for delivery of franchising disclosure documents. Under the current rules, a franchisor must deliver its franchise disclosure document personally or by registered mail. The proposed amendments would allow a franchisor to deliver a disclosure document by courier or electronically.

For electronic delivery to be valid, the franchisee must be able to view, store, retrieve and print the electronic disclosure document. As an example, an electronic disclosure document in PDF or Microsoft Word would typically satisfy these requirements. In addition, the electronic disclosure document must not contain any links to external documents or content. If the electronic disclosure document consists of separate files, then it must contain an index listing the name of each file, and if the file name is not sufficiently descriptive, it must also contain a description of the file. Finally, electronic delivery will only be complete when the franchisor receives an electronic acknowledgement of receipt from the potential franchisee.

The proposed amendments would also allow a franchisee to deliver a notice of rescission to terminate the franchise agreement by pre-paid courier. Currently, the franchisee must deliver the notice of rescission personally, by registered mail or by fax.

The Alberta Government is considering removing the exemption from financial statement disclosure for large franchisors. As a general rule under the Alberta Franchises Act, a franchisor must include financial statements with its disclosure document. The Franchises Act Exemption Regulation grants an exemption from this rule to large franchisors. A large franchisor is one that has a consolidated net worth of at least $5,000,000, or has a consolidated net worth of at least $1,000,000 and is controlled by a corporation with a consolidated net worth of at least $5,000,000. In addition, to rely on the exemption, the franchisor has had at least 25 franchises conducting business in Canada at all times during the last 5 years, and it has been conducting the franchised business for at least 5 years.

The Alberta Franchises Act Exemption Regulation is scheduled to expire on November 30, 2016, and the Alberta government is considering not renewing it. If the exemption is not renewed, then Alberta will become the only province with franchise legislation that does not contain a financial statement exemption for large franchisors. This would be a significant risk and burden for large franchisors. They would either need to prepare separate disclosure documents for Alberta or provide the financial statements to all of their potential franchisees.

This blog post was written by Paul Franco, a member of the Business Law team.  He can be reached at 613-369-0363 or at paul.franco@mannlawyers.com.

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