Franchisors are required under the Franchises Act to provide a Franchise Disclosure Document (“FDD”) to potential franchisees in British Columbia at least 14 days before the parties enter into a Franchise Agreement. The FDD is required to summarize all material facts regarding the franchise and include the franchisor’s financial statements.
If a franchisor fails to provide a FDD to a franchisee, or provides a deficient FDD, the franchisee may be entitled to rescind the Franchise Agreement. A franchisee may rescind within 60 days after receiving the FDD if the contents did not meet the requirements of the Franchises Act or if the FDD was not delivered in time. A franchisee may rescind within 2 years after entering into the Franchise Agreement if the franchisor never provided an FDD.
If a franchisee is entitled to rescind a Franchise Agreement, there can be significant financial implications. Under the Franchises Act, a franchisor must pay to the franchisee the following amounts within 60 days of the franchisee rescinding the Franchise Agreement:
- refund any money received from the franchisee, other than money for inventory, supplies, or equipment;
- purchase from the franchisee any inventory purchased under the Franchise Agreement and remaining in inventory on the rescission date;
- purchase from the franchisee any supplies and equipment purchased under the Franchise Agreement; and
- compensate the franchisee for any losses that the franchisee incurred in acquiring, setting up, and operating the franchise (excluding the amounts already covered above).
Franchisees need to meet the requirements of the Franchises Act in order to properly rescind a Franchise Agreement. Franchisees should also consider the implications of rescinding a Franchise Agreement, including ongoing obligations to landlords, employees, and creditors. If you would like advice regarding rescission of a Franchise Agreement, please contact Andrew or another member of our Franchise Law Team.
Andrew Brunton is a business and real estate lawyer at Pushor Mitchell LLP who acts for both franchisors and franchisees. You can reach Andrew at 250-869-1135 or [email protected]. For more information on our Franchise Law Team, please visit Franchising Services – Pushor Mitchell.
