Franchise disclosure law in Prince Edward Island

Prince Edward Island regulates franchise sales through the Franchises Act, R.S.P.E.I. 1988, c. F-14.1. For someone buying or selling a franchised business, it matters in two ways. It requires the franchisor to give a prospective franchisee a disclosure document before anything is signed or paid, and it treats a sale of a franchise as a “grant”, which can bring a resale inside the Act. Franchise disclosure is provincial law: other provinces, including Alberta, British Columbia, Manitoba, New Brunswick and Saskatchewan (in force 30 June 2026), have their own franchise statutes, and this guide describes only the Island’s. The consolidation read here is marked current to December 2, 2015, so confirm later amendments.

When the Act reaches a business

The Act applies to franchise agreements made after the section came into force, to their renewals and extensions, and to a business operated under one of them if it is to be operated partly or wholly in Prince Edward Island (s. 2). Some provisions, including ss. 3, 4 and 11 to 13, also reach agreements made before that date (s. 2). A “franchise” is defined in s. 1 by a required payment to the franchisor or its associate, together with either a trade-mark link plus significant control or assistance over how the business runs, or distribution rights plus location assistance. Section 2 lists relationships the Act does not cover, including employment, partnership and oral agreements with nothing in writing evidencing a material term.

A sale of a franchise can be a grant

The Act defines “grant” to include the sale or disposition of a franchise or an interest in it, and an interest includes owning shares in the corporation that owns the franchise (s. 1). A share sale of a company holding a franchise is therefore not automatically outside the Act. Section 5(7) excludes some grants from the disclosure duty, including a grant by a franchisee where the franchisee is not the franchisor, the franchisor’s associate or a director, officer or employee of either, the grant is for its own account, the entire franchise is granted if it is a master franchise, and the grant is not effected by or through the franchisor. A grant is not effected through the franchisor merely because the franchisor has a right, exercisable on reasonable grounds, to approve or disapprove it, or because a fee set out in the agreement or not exceeding the franchisor’s reasonable actual costs must be paid (s. 5(8)). Whoever claims an exemption must prove it (s. 13). See also what disclosure a franchise resale buyer gets.

What the franchisor must deliver, and when

Where no exemption applies, the Franchises Act requires the franchisor to provide a disclosure document that the prospective franchisee receives at least 14 days before the earlier of signing any agreement relating to the franchise and paying any consideration to the franchisor or its associate relating to the franchise (s. 5(1)). An agreement containing only confidentiality terms, or only terms designating a location, site or territory, does not count for this purpose unless it goes further in the ways s. 5(10) lists (s. 5(9)). It must be one document delivered at one time, personally, by registered mail or another prescribed method. It must contain all material facts, prescribed financial statements, copies of the proposed agreements and the prescribed statements and information. A written statement of any material change must follow as soon as practicable and before that same signing or payment. On a franchisor’s application, the Minister may exempt it from including the prescribed financial statements if satisfied that doing so would not be prejudicial to the public interest, subject to the order’s terms and conditions (s. 8). Regulations supply the detail.

Rescission: two clocks

Under the Franchises Act, a franchisee may rescind without penalty or obligation no later than 60 days after receiving the disclosure document, if the franchisor failed to provide it or a material change statement in time or its contents did not meet the requirements of s. 5 (s. 6). If the franchisor never provided a disclosure document, section 6(2) of the Franchises Act lets the franchisee rescind up to two years after entering the agreement. Notice must be in writing and delivered to the franchisor at its address for service, or to another person the franchise agreement designates for that purpose. Under section 6(6) of the Franchises Act, within 60 days of the effective date, the franchisor or its associate, as the case may be, must refund money received other than for inventory, supplies or equipment, buy back inventory, supplies and equipment the franchisee bought under the agreement at the price paid, and compensate the franchisee for losses in acquiring, setting up and operating the franchise, less those amounts.

Damages and fair dealing

A franchisee who suffers a loss because of a misrepresentation in the disclosure document or a material change statement, or because the franchisor did not comply with s. 5, may sue the franchisor, its broker, its associate and every person who signed the document (s. 7). The franchisee is deemed to have relied on a misrepresentation, but a person is not liable if they prove the franchisee acquired the franchise knowing of it, and s. 7(5) gives persons other than the franchisor further defences. Every franchise agreement also imposes on each party a duty of fair dealing in its performance and enforcement, which includes acting in good faith and in accordance with reasonable commercial standards (s. 3).

Terms the agreement cannot remove

A purported waiver or release by a franchisee or prospective franchisee of a right under the Act is void (s. 12). So is a term that restricts the application of Island law, or sends jurisdiction or venue to a forum outside the Island, for a claim otherwise enforceable under the Act in the Island (s. 11). A franchisor may not restrict franchisees from forming or joining an organization of franchisees (s. 4).

• Confirm that the business is, or will be, operated partly or wholly in Prince Edward Island and that the arrangement fits the Act’s definition of a franchise.
• Ask whether the sale is a grant by the franchisor or a resale the seller calls exempt, and what proof exists for each condition in s. 5(7).
• Record when the disclosure document and any material change statement were received, how, and the dates of every signing and payment.
• Ask whether the franchisor has an exemption from any financial-statement content and what the regulations require the document to contain.