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Is Your Disclosure Document "Clear and Concise"?

March 08, 2013

The disclosure document is the centrepiece of franchise law in Canada. In those provinces which have franchise legislation, franchisors are required to provide prospective franchisees with a sufficient amount of background on the system via the disclosure document so that those prospects can make informed investment decisions about whether they want to become a franchisee or not.

One of the tenets of franchise law is that, while containing all the requisite pieces of information which the legislation requires, disclosure documents must also be "clear and concise". Conciseness is generally anathema to lawyers, and those who practice in franchising are no exception. As a result, it is not uncommon to come across disclosure documents that are anywhere from 100 - 400 pages long, depending on the number of attachments to the main document. 

It is a tough balancing act which those of us who draft disclosure documents day in and day out must abide by. On the one hand, we want to be sure that our franchisor clients are leaving no stone unturned in their disclosure so that every question which a franchisee may have can be answered within the pages of that document. After all, franchise legislation sets out a laundry list of categories of information which have to be disclosed, with the basket provision that all "material facts" must also be included. We want to make sure we're not missing anything.

On the other hand, an information package which pages number in the hundreds is unlikely to meet that threshold of clarity and conciseness that goes to the raison d'etre of a disclosure document - so that the franchisee can understand it! Many times, franchisees will deliver a disclosure document to their lawyers without ever having actually read it, so daunted they are by its volume and breadth.

There is no doubt that, in order to protect our franchisor clients, franchise lawyers must draft lengthy disclosure documents to ensure that all of the potentially relevant information which a franchisee should or needs to know be included. In that respect, one should not expect a disclosure document to be "concise" as that term may be generally understood. Perhaps a disclosure document's conciseness should be measured against other disclosure documents as a reference point for when one has gone on far longer than need be. 

However, it is incumbent upon us as franchise lawyers to ensure that we control the "clarity" element of the information which gets presented to franchisees. Just because a document is long doesn't mean it can't be written in plain English. If we want to ensure complaint franchise disclosure documents which accomplish their legislative purpose, perhaps it is time that we draft them in more accessible language rather than as correspondence between legal advisors.

Tags: Franchising