Underneath the Golden Boy - Robson Hall Faculty of Law

Response to Consultation Paper on Franchise Law 317
iii. Site Selection Agreements
Unlike the Arthur Wishart Act (Franchise Disclosure), 2000, the PEI and
Alberta Acts as well as the UFA exclude site selection agreements from the
definition of “franchise agreement.” Accordingly, and unlike Ontario, these
agreements may be entered into in advance of a disclosure document being
given. 75 If the franchise is a turnkey operation, where the franchisor is in charge
of development and selection of premises and the franchisee simply has to
unlock the door to begin operating its business, no site selection agreement is
needed. However, when the franchisee is partially or completely responsible for
choosing and developing the location, a site selection agreement will be
needed. 76
A site selection agreement is a breed of commitment agreement. Under a
commitment letter, the supposed franchisee’s pre-opening obligation is to
procure premises for the franchised business. The site selection agreement may
impose certain site and lease criteria and approvals with which the franchisee
must comply in order to move forward with the development of the franchise.
Often, the site selection agreement requires the franchisor to review promptly
and approve or reject the site. 77
The ULCC recommends that an agreement which is restricted to
designation of a location should be able to be entered into prior to disclosure and
should therefore be exempt from disclosure. A prospective franchisee would not
be prejudiced in this regard. 78 Consequently, section 10 of the UFA states that
an agreement is not a franchise agreement or any other agreement relating to the
franchise if the agreement only contains terms in respect of designating a
location, site, or territory for a prospective franchisee.
In theory, receiving the site selection agreement before the disclosure
document could be beneficial for the franchisee. This is because rather than
having to become familiar with a very large document prior to signing the
Franchise Agreement, the franchisee will have more time to consider each
document separately. Consequently, allowing a franchisor to issue a site selection
document prior to the disclosure document will result in a franchisee being able
75
Larry Weinberg, “Franchise Law e-LERT – Canadian Franchise Law – Legislative Updates,”
online: Cassels Brock Resources .
76
Frank Zaid, supra note 65 at 14.
77
Kevin M. Shelley and Jonathan J. Toronto, “Preliminary Agreements: How to Avoid
Unintended Contractual Obligations,” (Fall 2005) Vol. 25, No. 2, Franchise Law Journal 47 at
53; or online: Franchise Law Journal
.
78
Edward N. Levitt, supra note 62.