Drafting Franchise Disclosure Documents & Related Documents
Improve the quality and legal compliance of your Franchise Disclosure Documents
If you are a growing franchise system, it’s important that the quality and legal compliance of your Franchise Disclosure Documents reflect the stature of your business.
To get in contact with our team of professionals about a Drafting Franchise Disclosure Documents & Related Documents, please fill out the form to get started!
How Law Works Helps You
Management of Complex Disclosure Issues
We have helped growing franchise systems deal with difficult and legally complex disclosure problems. For example, we have helped repair disclosure non-compliance with existing franchisees who had not received compliant Franchise Disclosure Documents and who may have been entitled to rescission.
Representation in Franchise Agreement Negotiation
We represent master franchisors and master franchisees in the negotiation of complex master franchise agreements.
Want to expand a thriving business through the franchise business model?
Drafting a Franchise Disclosure Document (FDD)
Rescission claims pose potentially devastating financial and reputational risk for franchisors and their franchise systems. They risk the following:
- court or arbitration awards that can reach hundreds of thousands of dollars of liability per franchisee;
- significant harm to the reputation and goodwill of the franchisor and the franchise system, and
- reputational harm to other franchisees in the system.
It is critical that the franchise disclosure document (FDD) is legally complaint with provincial franchise legislation and contain all fundamental components prescribed by franchise legislation and all materials facts.
What a Compliant FDD Must Contain
A franchisor is required to provide a valid FDD to a prospective franchisee 14 days before he or she signs any contractual commitment or makes any payment or other financial obligation to any party.
The FDD must contain all fundamental components prescribed by franchise legislation and all materials facts. Among many requirements, a compliant FDD must include the following:
- all material facts about the franchisor, the franchise system, and all other prescribed information (setup costs, system-wide franchisees lists including terminated franchisees, etc.);
- all contractual and legal requirements relating to site-selection and setting up of the franchised business;
- all contractual and legal requirements for the operation of the business;
- all industry-specific legal requirements for the setup and operation of the franchised business;
- copies of all agreements that the franchisees are required to sign;
- all information specific to the area or location of the franchised business, including the following:
- all material facts about the area or territory and the proposed location, including its history (if relevant);
- all material facts about the lease;
- in a resale, all material facts about that specific franchised business store sales.
Leaving out key information or a document poses significant potential liability for franchisors by risking a rescission claim by the franchisee at any time within two years from the date of the franchise agreement.
What Law Works Brings to The Table
Law Works has the expertise and proven track record in representing franchisors in Ontario and other provinces.
We have deep and wide-ranging experience representing parties to franchise disputes in mediations, litigation, arbitrations and appeals. We vigorously protect our clients’ rights and are savvy advisors around the boardroom table in all areas of franchise disputes.
Our principal and founder, Ben Hanuka, has over two decades of experience as a franchise litigator. We have represented franchisors going back to even before franchise legislation was enacted in Ontario (the Arthur Wishart Act (Franchise Disclosure), 2000), and before modern legislation was enacted in other provinces where franchises are regulated (British Columbia, Alberta, Manitoba, New Brunswick, and PEI).
Scope and Cost of Drafting an FDD
The following is a general rough outline of what costs franchisors should expect when hiring a franchise lawyer with the necessary expertise.
This outline is not specific to any particular franchise system or industry.
The scope and cost of drafting an FDD can vary significantly depending on the complexity of the business model, material facts, size and complexity of the franchise and corporate-owned system and the regulatory environment, among other factors.
The scope of drafting an FDD and franchise agreement will also depend on whether it is prepared for a new system or if it is an update or overhaul of existing franchise documents.
Other factors that can impact the scope and cost of drafting an FDD and franchise agreement, or upgrading them, may include the following:
- the complexity and importance of material facts and industry regulation;
- the level of investment required of the franchisee;
- the complexity of the franchise system;
- if there are related franchise systems;
- the complexity of the franchise terms;
- the number and complexity of other agreements related to the franchise;
- the ability of the franchisor to provide all relevant information in a timely manner, and
- any other relevant factor that can affect the legal fees or overall costs of the work.
The following is a general outline of the scope of possible steps that may be involved in the work of preparing or upgrading an FDD and franchise agreement. It is provided solely for informational purposes as a general rough outline of what to expect when preparing or upgrading an FDD and franchise agreement.
This general outline is provided subject to the following conditions:
- This scope is general. It is not specific to any particular franchisor or franchise system. It is intended to provide a general sense of what steps and effort may be possibly involved in preparing or upgrading an FDD and franchise agreement. Therefore, it is not intended to be read or relied on as legal advice.
- Preparing or upgrading any particular FDD or franchise agreement may include some or all of the steps listed below, or additional steps not listed below.
- Each franchisor, franchise system, FDD and franchise agreement is unique and will have its own circumstances. Each case will result in different fees and overall costs, depending on many factors, including those listed above.
- This general scope is subject to change without notice.
New FDD
Scope of drafting a new FDD:
- 50 to 100 hours by a principal, associate lawyer with help from a law clerk.
- This does not include preparation of the site-specific information for each individual franchised location.
Key activities include, but are not limited to:
Industry Analysis
Identification of unique elements of the industry – level and impact of regulation (for example, a coffee franchise will have minimal regulation while a daycare operates in an extensive regulatory environment).
Franchise System Analysis
Collecting all material information about the franchise system, the business model and the process of setting up a franchised business.
Franchise Agreement Analysis
Identifying all necessary definitions, terms and conditions to accurately reflect the franchise system and the franchisor’s requirements in the setting up, operation, renewal, termination and post-termination rights and obligations of the parties.
Document Preparation
Drafting all information for the FDD and the franchise agreement.
Site-Specific Section for Franchised Locations
Identifying and collecting all material site-specific information, such as lease, location history (for conversions), availability, zoning restrictions, financials (where required), and drafting site-specific section for the FDD.
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