The Franchise Memorandum

Last week, New Brunswick became the fourth province in Canada to enact a franchise disclosure law. Because the law became effective before many franchisors have updated their disclosure documents, franchisors either will have to update now to comply with the New Brunswick Franchises Act or postpone sales of franchises in New Brunswick until they update their disclosure documents.

What does this mean for franchisors offering and selling franchises in New Brunswick? All franchisors offering and selling franchises in New Brunswick must provide a disclosure document to a prospective New Brunswick franchisee 14 calendar days before the prospect signs any agreement relating to the franchise or the franchisor accepts any consideration. This disclosure must contain the disclosures required under the New Brunswick Franchises Act. Since many franchisors have not yet updated their Canadian disclosure documents for 2011, they are electing to suspend sales in New Brunswick until they update in March or April. Alternatively, a franchisor could prepare a wrap-around addendum to address New Brunswick specific information and to update other material information in its disclosure documents, as discussed below.

How does the New Brunswick Franchises Act differ from other provincial franchise laws? The New Brunswick Franchises Act is very similar to the Prince Edward Island franchise law (as well as Alberta and Ontario franchise laws). There are a few notable differences in New Brunswick:

• A franchisor must disclose the table of contents for its operations manual.
• A franchisor must disclose its policies and practices relating to internet and other “distance sales” (the term “distance sales” is not defined).
• A franchisor must disclose summary descriptions of every license, registration, authorization, or other permission that a New Brunswick franchisee must obtain under federal or provincial laws.
• A franchisor must disclose a list of units in New Brunswick operated by the franchisor or its affiliates, including the name and business address of each such unit.
• The duty of good faith and fair dealing explicitly extends to the ongoing performance and enforcement of the franchise agreement.

Do franchisors need a separate disclosure document to sell franchises in New Brunswick? No. The New Brunswick Franchises Act specifically allows franchisors to use a disclosure document from another jurisdiction, provided the information is supplemented with any additional information required under the New Brunswick Franchises Act. As a result, U.S.-based franchisors can use a modified version of their existing United States FDD or Canadian disclosure document.