Can a franchisor force a new buyer to renegotiate the whole agreement?

A buyer who expects to step into the seller’s agreement may be handed the franchisor’s current form instead. Which happens turns on what the transfer clause requires. The statutes in Ontario and Alberta also treat who grants the franchise as a disclosure question.

The transfer clause sets the starting point

Read how the existing agreement treats a transfer. Check whether the clause permits an assignment of the existing agreement or requires the incoming buyer to sign the franchisor’s then-current form. Ask the franchisor in writing which applies, and compare any new form line by line with the old: remaining term, renewal, fees, territory and training.

Who grants the franchise matters for disclosure

Under Ontario’s Arthur Wishart Act (s.5(7)(a)), the disclosure duty does not apply to the grant of a franchise by a franchisee if conditions are met, including that the grant is not effected by or through the franchisor. Section 5(8) says a grant is not effected by or through the franchisor merely because the franchisor may approve or disapprove on reasonable grounds, or because a transfer fee is payable. Alberta’s Franchises Act (s.5(1)(a) and (2)) is similar. If the franchisor itself grants a new agreement, ask a lawyer whether the exemption still applies.

If disclosure applies

In Ontario, a franchisor must give a prospective franchisee its disclosure document not less than 14 days before the earlier of signing the franchise agreement or any other agreement relating to the franchise, and paying any consideration to the franchisor or its associate relating to the franchise, subject to the exceptions in s.5(1) and (1.1). A buyer who never receives a required document may have rescission rights under s.6. Other provinces set their own rules, which the Canadian Franchise Association describes as similar in many elements but different in important ways.

Make it a condition of your offer

Make the offer conditional on seeing the franchisor’s intended agreement and any fees in writing. Without that condition, a buyer could be committed before seeing the new terms.