Document Disclosure Requirements Under SK's New Franchise Laws: What We Know So Far

On May 8, 2024, The Franchise Disclosure Act received royal assent and will come into force by Order of the Lieutenant Governor in Council at a future date.

Once in effect, The Franchise Disclosure Act will impose certain rights and obligations on franchisors, including the requirement for franchisors to provide a disclosure document to prospective franchisees before a franchise agreement is entered into or any payment is made in connection with the franchise opportunity.

Typically, disclosure documents aim to ensure transparency and to allow prospective franchisees to make an informed decision before joining the franchise system. Accompanying regulations have yet to be published and it is anticipated that the regulations will provide, among other things, additional details and clarity as to what must be included in the disclosure document.

What we know at this point

Here is what we know so far about what must be included in a disclosure document pursuant to The Franchise Disclosure Act (in addition to any requirements, clarification and details to follow in the regulations, once published):

Material facts: All "materials facts" must be included as part of a disclosure document. "Material facts" means any information about the business, operations, capital or control of the franchisor or franchisor's associate, or about the franchise or the franchise system, that would reasonably be expected to have a significant effect on the value or price of the franchise to be granted or the decision of the prospective franchisee to acquire the franchise.
Financial statements: Financial statements of the franchisor must be included; additional detail on the type, scope, standard and timing of such financial statements are expected to be set out by the regulations.
Copies of all franchise agreements and other agreements the franchisee must sign in connection with the franchise opportunity: Forms of all agreements that the franchisee will be expected to sign must be provided for review as part of the disclosure document package.
Statements to be set out by regulation: The disclosure document must include certain statements such as prescribed cautionary or "risk" statements to assist the prospective franchisee with making informed investment decisions.

In addition, there are a number of related technical requirements for timing, mechanics and delivery that franchisors must meet when providing the disclosure document to a prospective franchisee:

Timing: The disclosure document must be provided by the franchisor to the prospective franchisee at least 14 days before the franchise or related agreement is entered into or any payment for the franchise is received.
Refundable deposit: Franchisors can accept a refundable deposit from a prospective franchisee before the disclosure document is provided, however, generally such a deposit will be subject to a limit or maximum. It is anticipated that a deposit taken by a franchisor in Saskatchewan would not be compliant if it was in excess of an amount or threshold set out by the regulations.
Confidentiality Agreements and Territory Agreements: Confidentiality Agreements and Territory Agreements can be entered into with a prospective franchisee before the disclosure document is provided the agreement contains terms with respect to confidentiality, location, site or territory Such Confidentiality Agreements or Territory Agreements may not, among other things, prohibit disclosure to other franchisees or professional advisors.
Accurate, clear and concise: Disclosure documents must be clear, concise and accurate in form and substance.
One document: The disclosure document must be delivered as one document (unless otherwise permitted by regulations).
Method of delivery: The disclosure document must be personally delivered.
Exceptions: There are a number of exceptions to the requirement for a franchisor to provide disclosure. For example, the disclosure requirements do not apply to franchise agreements that are in place before the legislation comes into effect, or the grant of an additional franchisee to an existing franchisee in certain situations, among other circumstances.

Statements of Material Change

Beyond providing the disclosure document, franchisors must provide franchisees with a "statement of material change" if a material change to the franchise system or the information contained in that disclosure document occurs after the disclosure document is provided to the prospective franchisee, but before any franchise or related agreement is entered into or payment received.

A material change is generally any change in the business, operations, capital or control of the franchisor or franchisor's associate, the franchise or the franchise system that would reasonable be expected to have a significant adverse effect on the value or price of the franchise to be granted or on the decision to acquire the franchise, and includes (for example) a decision to implement a change made by the board of directors or senior management of the franchisor or franchisor's associate.

Consequences for Failure to Disclose

Where franchisors fail to meet their disclosure obligations, the penalties can be steep – including the following:

Inadequate disclosure: Franchisees may rescind the franchise agreement if a disclosure document did not meet the requirements of the legislation or if a statement of material change was required but not provided for a period of up to 60 days after receipt of the deficient disclosure document.
No disclosure: Franchisees may rescind the disclosure document for a period of up to two years after entering into the franchise agreement if no disclosure document is received at all within those two years, or the disclosure that was provided was so materially deficient as to amount to no disclosure at all.
Misrepresentation: If the disclosure document contains any misrepresentations, the franchisee has a right to damages that extends to the franchisor, the franchisor's broker, the franchisor's associate, and anyone who signed the disclosure document or statement of material change – including the director or directors of the franchisor who signed the prescribed certificate contained in the disclosure document.

Substantial Compliance

In line with similar legislation in other provinces, The Franchise Disclosure Act provides some breathing room for well-intentioned franchisors. Disclosure documents only need to "substantially comply" with the above requirements. Defects in form and technical irregularities or errors will not attract the above consequences as long as:

The defect, technicality or error does not affect the substance of the disclosure document or the statement of material change; and
The disclosure document or the statement of material change is otherwise substantially compliant.

As a result, minor deficiencies and well-intentioned oversight may not attract the repercussions discussed above. However, the assessment of what is 'minor' is highly fact specific. Franchisors should apply best practices in meeting the disclosure obligations set out in The Franchise Disclosure Act and be cautious not to place too much reliance on this protection.

What this means for franchisors

When preparing, updating and delivering a disclosure document it is critical that franchisors develop a strong system to ensure compliance with legal requirements and reduce the risk of attracting costly penalties (that compound as required disclosure). Franchisors are encouraged to seek legal advice on how to best comply with requirements of franchise legislation in all stages of the disclosure and franchise acquisition process.

MLT Aikins has extensive experience advising franchisors on franchise structures, agreements, and disclosure documents in Saskatchewan as well as under similar legislation across Western Canada. Contact one of our franchise lawyers to learn more.

Additional information

For additional details on The Franchise Disclosure Act, and its progression through the Saskatchewan legislature, please see the following blogs:

For discussion of key requirements of franchise disclosure legislation across Canada and considerations when building your franchise system, please see the following blogs:

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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