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Understanding the Disclosure Document: Locations and franchisees

By Peter Snell
Over the past several issues of Canadian Business Franchise, this column has been exploring the content of franchise disclosure documents in Canada. In this issue, it is time to look at what the disclosure document tells you, the prospective franchisee, about a franchise system’s former and current franchisees and their business locations and why you should speak to them when gathering information before making the decision whether or not to purchase a franchise yourself.

As always, it is extremely important to take the time to fully analyze the disclosure document and be ready to ask the franchisor any questions that arise from such reading. While the following information can serve as a general overview, prospective franchisees must also seek their own legal and accounting advice when reviewing the document and the associated franchise agreement. Only then can they obtain the specific information and advice relevant to their particular circumstances.

Permits, licences and location-specific disclosure
Over the past few years, the courts in Canada have been putting more responsibility on franchisors to provide location-specific information to potential franchisees in provinces that have enacted franchise legislation. As a result, today’s franchisors are providing more details about the particular locations being considered by their prospects, including additional information about existing franchises up for sale.

In some cases, the franchisor will set out this information within the disclosure document itself. In others, the franchisor will provide it in a supplemental document called a ‘statement of material changes.’

The exact type of location-specific information provided will vary depending upon the circumstances, but it may include demographic data from Statistics Canada, information about the lease, the locations of competitors in the area, financial reports by the previous franchisee (in the case of a resale) to the franchisor and other pertinent information that is not otherwise set out in the disclosure document.

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As much as the courts have been placing more responsibility on franchisors to provide detailed information, given the variations that can occur, it is best for you to also be diligent and ask appropriate government representatives, municipal zoning authorities, the landlord and other relevant agencies about what permits and licences you will require and, for that matter, whether or not the proposed location for your franchise is even properly zoned for your intended purpose.

With this in mind, you should fully review the profile of the area where you are planning to operate your franchise. And if you are considering purchasing an existing franchise location, it is critically important to seek professional business and financial advice.

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