Thursday, July 19, 2007

New Brunswick Enacts Franchise Disclosure/Relationship Law

This posting was written by Peter Reap, Editor of CCH Business Franchise Guide.

New Brunswick has become the fourth Canadian province to enact a generally applicable franchise law. The New Brunswick Franchises Act—a disclosure and relationship statute—became law upon receiving Royal Assent on June 26.

The statute requires franchisors to make presale disclosures to prospective franchisees, imposes a duty of good faith and fair dealing on parties to franchise agreements, and guarantees franchisees the right of association.

Disclosure Requirements

Modeled on the Uniform Franchises Act (CCH Business Franchise Guide ¶7021), which was adopted by the Uniform Conference of Canada in 2005, the New Brunswick law requires a franchisor to provide a prospective franchisee with a disclosure document at least 14 days prior to the signing of an agreement or the payment of consideration. A disclosure document must contain a financial statement, copies of all agreements, and statements for the purpose of assisting the prospective franchisee make an informed investment decision.

Right to Rescind, Sue for Damages

The statute provides a franchisee with a right to rescind the franchise agreement (1) within 60 days after receiving the disclosure document if the franchisor did not provide the document within the required time or the document was deficient and (2) within two years of entering the franchise agreement if the franchisor never provided the document.

A franchisee shall have a right of action for damages caused by a misrepresentation or nondisclosure in the disclosure document.

Implementing Regulations

The Lieutenant-Governor is authorized to issue regulations prescribing the content of the financial statement and other information included in the disclosure documents and setting forth rules for informal dispute resolution and mediation.

The law is expected to be proclaimed into force upon the promulgation of implementing regulation. Text of the legislation (Bill 32) appears here on the website of the Legislative Assembly of New Brunswick.

The other Canadian Provinces with franchise laws are Alberta, Ontario, and Prince Edward Island. Manitoba is investigating potential legislation.

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