BRITISH COLUMBIA'S NEW FRANCHISE LEGISLATION

 

On February 1, 2017, British Columbia will join the group of provinces that regulate franchising when the Franchises Act (“B.C. Act”) and its regulation (“B.C. Regulations”) come into force, signalling to franchisors doing business in Canada that it is time to take another look at your franchise disclosure document (“FDD”) for compliance with these new laws.

As in the other regulated provinces (Ontario, Manitoba, Alberta, New Brunswick and Prince Edward Island), franchisors offering franchises in British Columbia will be required to prepare an FDD which complies with the B.C. Act and the B.C. Regulations. The good news is that an FDD that has been prepared for use in the currently regulated provinces will meet a number of the requirements of the B.C. Act and the B.C. Regulations.

Much of the requisite content of the FDD should be familiar to most franchisors, such as the obligation to provide materials facts, copies of all proposed agreements relating to the franchise, background information regarding the franchisor and its officers and directors, lists of current and former franchisees, specific risk warning statements, and prescribed financial statements,

While there are a number of similarities between British Columbia’s legislation on the one hand and the current provincial franchise statutes on the other, there are also unique provisions and various differences set out in the B.C. Regulations. It will be important for franchisors to conduct a comprehensive review of their FDDs prior to their use in British Columbia. Franchisors should be careful to avoid glossing over some of the finer and technical requirements on this new set of legislation. We have identified some of the major differences below.

Pre-Disclosure Exceptions and Delivery

Pre-Disclosure Agreements and Deposits

Ontario continues to be the outlier on the matter of pre-disclosure exceptions. If you are already offering franchises in the other regulated provinces, you know that a franchisor cannot accept payment (or other consideration) or have any agreement signed until at least 14 days have passed since the issuance and proper delivery of an FDD. In Ontario, there are no exemptions or exceptions to this rule. In Alberta, Manitoba, New Brunswick, Prince Edward Island and soon British Columbia, a franchisor may have a prospective franchisee sign an agreement with respect to confidentiality and/or site or territory designation, and may accept a fully refundable deposit which does not exceed the prescribed amount under the applicable regulations, without violating its obligation to disclose. The B.C. Act specifically provides that this deposit is refundable without any deductions if the prospective franchisee does not enter into a franchise agreement.

Delivery

The B.C. Act provides that the FDD (and any statement of material change) may be delivered personally, by e-mail, or by any other prescribed methods. The B.C. Regulations specify the following prescribed methods:

  • prepaid courier or an equivalent prepaid method; or
  • electronic means, including e-mail, if (i) the FDD is delivered in a form that enables the prospect to view and print the FDD; (ii) all of the information is self-contained (i.e. is available without accessing external documents or content; and (iii) the franchisor receives a written acknowledgement of receipt.

Unlike the franchise legislation of Ontario, Manitoba, and Prince Edward Island, registered mail is not a prescribed method of delivery.

Content of the Franchise Disclosure Document

Financial Statements

Each of the regulated provinces requires the disclosure of prescribed financial statements of the franchisor for the most recently completed fiscal year. The legislation of Alberta, Manitoba, Ontario, New Brunswick, and Prince Edward Island each provide that the financial statements must be prepared to an audit or review engagement standard in accordance with the CPA Canada Handbook.[1]

The regulations of Alberta, Manitoba, New Brunswick, and Prince Edward Island, specifically provide that the auditing standards and the review and reporting standards of other jurisdictions that are at least equivalent to such Canadian standards are acceptable. In an effort to add clarity to this requirement, British Columbia goes one step further. The prescribed financial statements must be prepared in accordance with the generally accepted accounting principles of the franchisor’s jurisdiction, and must be either audited or reviewed to the review engagement standard as set out in the CPA Canada Handbook or by the International Auditing and Assurance Standards Board. In addition, the financial statements may be audited or reviewed in accordance with the standards of the franchisor’s jurisdiction if those standards are equivalent to those set out in the CPA Canada Handbook or by the International Auditing and Assurance Standards Board.

An opening balance sheet may be provided in lieu of financial statements if (a) the franchisor has operated for less than one fiscal year; or (b) 180 days have not passed since the end of the franchisor’s first fiscal year. The legislation of the other regulated provinces does not specify the standard to which this opening balance sheet must be prepared. However, the B.C. Regulations require that the opening balance sheet be prepared in accordance with the audit or review engagement standards, as described above. New franchisors wishing to offer franchises in British Columbia will likely incur additional costs as a result.

Licences and Permits

While the requirement to set out every license, registration, authorization or other permission that the franchisee is required to obtain is not a novel requirement, it is an important area of the FDD to revisit and update. Both provincial and federal licences and permits must be listed in this section.

Guarantees and Security Interests

As set out in the B.C. Act, the FDD must contain copies of all proposed franchise agreements, and other agreements related to the franchise, to be signed by a prospective franchisee, and copies of other prescribed documents. With respect to guarantees and security interests required of franchisees, the franchisor must include a description of the franchisor’s policies and practices, if any. This description is required in Manitoba, Prince Edward Island, and New Brunswick, but not in Ontario or Alberta.

Certificate

The certificate that is signed and dated by the franchisor, or its officer(s) and/or director(s), as applicable, must be attached to every FDD, pursuant to the regulations of each of the regulated provinces. This is no different under the British Columbia legislation.

Unlike in Ontario, the B.C. Regulations require that the franchisor also attach a similar certificate to every statement of material change, which certifies that the statement of material change contains no untrue information, representation, or statement, whether of a material change or otherwise; and contains every material change that is required to be disclosed by the B.C. Act and the B.C. Regulations.

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We have highlighted some of the major differences between British Columbia’s franchise legislation and the existing franchise framework in Canada. Franchisors are encouraged to undertake a careful review of their existing FDDs if they intend to offer franchises in British Columbia as of February 1, 2017.

Questions? Dale & Lessmann LLP invites you to contact our experienced Franchise and Distribution Law Practice Group for assistance and guidance in connection with your franchise matters.

 

Chad Finkelstein

416-369-7883

cfinkelstein@dalelessmann.com

 

Jeffrey Hoffman

416-369-7806

jhoffman@dalelessmann.com

 

Cassandra Da Re

416-369-7843

cdare@dalelessmann.com

 

[1] Note, the applicable regulations of New Brunswick, Prince Edward Island, Ontario, and Manitoba reference the “Canadian Institute of Chartered Accountants Handbook”, which was renamed the “CPA Canada Handbook” in 2013.