Signing a Franchise Agreement in BC: Disclosure Documents and the 14-Day Rule

Buying a new franchise unit usually means signing a long agreement drafted by the franchisor, often alongside a lease, a personal guarantee and supply contracts. In BC, the law gives prospective franchisees a window to review all of it before committing.

That window, and the remedies if a franchisor skips it, come from the Franchises Act and the Franchises Regulation. Knowing how they work helps you spot problems before your money is at risk.

The 14-day rule

Under s 5(1) of the Franchises Act, a franchisor must give a prospective franchisee a disclosure document, and you must have received it at least 14 days before the earlier of:

• signing the franchise agreement or any other agreement relating to the franchise; and
• paying the franchisor, or its associate, any consideration relating to the franchise.

The clock runs from when you receive the document, so delivery matters. The Act and Regulation allow delivery personally, by prepaid courier with tracking and confirmation of receipt, or electronically, including by email, if you can view and print the document, everything is contained in it without linking to outside content, and the franchisor receives your written acknowledgement of receipt (Act s 5(2); Regulation s 8). The document must be delivered as one complete document, at one time (s 5(3)).

Two narrow carve-outs often come up early in the process:

• Confidentiality and site agreements. An agreement that only deals with keeping information confidential, or only designates a location, site or territory, is not treated as an agreement that has to wait for the 14 days, unless it goes further than the Act allows, for example by stopping you from sharing information with your professional advisors (s 5(11) and (12)).
• Small refundable deposits. A deposit is not treated as a payment if it is no more than 20% of the initial franchise fee, is fully refundable if you do not sign, and is given under an agreement that does not commit you to signing (s 5(13); Regulation s 11).

What the disclosure document must contain

The document must include the franchisor's financial statements, copies of all proposed franchise agreements and other agreements you will be asked to sign, prescribed statements and information, and all material facts (s 5(4) and (5)). The Regulation fills in the detail (ss 2 to 7), including:

• risk warning statements set out together at the beginning of the document;
• a description of any arbitration, mediation or other dispute resolution requirements, including where they take place;
• financial statements that are audited or reviewed to the required standard, unless the franchisor meets a size and track-record exemption;
• information about the franchisor, the franchise and its costs, and lists of current and former franchisees and closures;
• a certificate that the document contains no untrue information and every required material fact, signed and dated by the franchisor or, for a corporation with more than one director or officer, by at least two of them.

If something material changes after you receive the document, the franchisor must give you a written statement of the change before you sign or pay (s 5(6)).

Your right to rescind

The Act gives two rescission windows (s 6):

• 60 days. If the disclosure document or a statement of material change was not provided on time, or the document did not meet the requirements of s 5, you may rescind within 60 days after receiving the disclosure document.
• 2 years. If the franchisor never provided a disclosure document, you may rescind within 2 years after entering into the franchise agreement.

Notice of rescission must be in writing and delivered to the franchisor's address for service or a person designated in the agreement, either personally or by prepaid courier with tracking and confirmation of receipt (s 6(3); Regulation s 9). Within 60 days after rescission takes effect, the franchisor must refund money you paid (other than for inventory, supplies or equipment), buy back inventory, supplies and equipment at what you paid, and compensate you for other losses in acquiring, setting up and operating the franchise (s 6(5)).

Not every defect triggers rescission. A document still complies despite a defect in form, technical irregularity or error that does not affect its substance (s 9).

Other protections you cannot sign away

• Fair dealing. Every franchise agreement imposes on each party a duty of fair dealing, including good faith and reasonable commercial standards (s 3).
• Right to associate. You may associate with other franchisees and form or join an organization of franchisees, and a clause that restricts this is void (s 4).
• Damages. If you suffer a loss because of a misrepresentation in the disclosure document, or a failure to comply with s 5, you have a right of action for damages against the franchisor and certain others, including every person who signed the document (s 7).
• BC law and forum. A clause restricting the application of BC law, or requiring disputes to be heard outside BC, including by arbitration, is void for claims under a franchise agreement to which the Act applies (s 12).
• No waivers. A waiver or release of your rights under the Act is void, except as part of a settlement (s 13).

When the Act does not require disclosure

Section 5 does not apply to every transaction. Exemptions include, among others, buying an existing unit from a franchisee in certain circumstances, an additional franchise substantially the same as one you already operate where nothing material has changed, and an investment of more than $5 million (s 5(8); Regulation s 10). Anyone relying on an exemption has the burden of proving it (s 14). If you are buying an existing franchised business rather than a new unit, see our due diligence checklist for buying a business in BC.

Making good use of the 14 days

The waiting period is only useful if you use it. Read the franchise agreement against the disclosure document, check the financial statements, and call current and former franchisees from the lists provided. Review the premises lease at the same time: our article on commercial lease clauses to check before you sign covers the key terms to review.

Considering a franchise? Have the disclosure reviewed before you sign

Our business lawyers can review the disclosure document and franchise agreement, explain your obligations and rights under the Franchises Act, and raise concerns with the franchisor before you commit.

Call 604-259-2844 or send us a message to arrange a consultation at our Vancouver office.