Prince Edward Island Enacts Franchise Legislation

On June 7, 2005, the Legislative Assembly of the Province of Prince Edward Island gave royal assent to Bill 43, the Franchises Act. While Bill 43 has received royal assent, it has not yet been put into effect as the Regulations to the Franchises Act have not been finalized.

Prince Edward Island’s Franchises Act is very similar to franchise legislation currently in force in the Provinces of Alberta and Ontario. By way of summary, Prince Edward Island’s Franchises Act contains the following key provisions:

1. a franchisor is required to provide a prospective franchisee in Prince Edward Island with a disclosure document not less than 14 days before the signing of a Franchise Agreement or the payment of money by the prospective franchisee to the franchisor. The disclosure document must disclose all material facts, including the franchisor’s financial statements, copies of all proposed agreements to be signed by the franchisee and other information that is detailed in Regulations that are currently only in draft form;

2. a franchisee who has entered into a franchise agreement for a franchise in Prince Edward Island without having received a disclosure document may rescind the franchise agreement up to the earlier of: 
   1. (i) 60 days after receiving a disclosure document; or 

   2. (ii) 2 years after entering into the franchise agreement if the franchisor failed to provide a disclosure document.

   If a franchise agreement is rescinded, the franchisor must refund to the franchisee any money that it received from the franchisee, purchase from the franchisee any inventory that it purchased pursuant to the franchise agreement and compensate the franchisee for any losses it incurred in acquiring, setting up and operating the franchise;

3. a franchisee has a right of action for damages against a franchisor if the franchisee suffered a loss because of misrepresentations contained in the disclosure document;

4. any attempt to limit the application of the laws of Prince Edward Island or to require that claims be resolved outside the Province of Prince Edward Island are void where such claims would otherwise be enforceable under the Franchises Act; and

5. a duty of fair dealing in the performance and enforcement of franchise agreements and a right of action for damages against another party to a franchise agreement who breaches the duty of fair dealing.

In October 2005, the Office of the Attorney General for Prince Edward Island circulated draft Regulations to the Franchises Act. These Regulations deal with when a franchisor is exempt from including financial statements in a disclosure document and detail what must be specifically included in a disclosure document. The draft Regulations to Prince Edward Island’s Franchises Act require that a disclosure document contain information that is very similar to what must be included in a disclosure document in the Provinces of Alberta and Ontario. 

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