Can I get a refund of unused franchise fees if I sell partway through the term?

A franchisee selling mid-term may wonder whether part of the initial franchise fee or other prepaid amounts should come back. The statutes that exist deal with a different situation. A refund on a sale, if there is one, comes from the contract.

Where the statutes do require a refund

Ontario’s Arthur Wishart Act (s.6(6)(a)) requires the franchisor or its associate, within 60 days of the effective date of a rescission, to refund money received from or on behalf of the franchisee, other than money for inventory, supplies or equipment. Rescission is available when the franchisor failed to provide the disclosure document or a statement of material change within the time required, or the document’s contents did not meet the Act’s requirements (s.6(1)), or never provided the document (s.6(2)). That rule concerns the buyer’s original purchase from the franchisor. It does not describe a franchisee who is selling.

Where a sale price comes from instead

When you sell a franchise resale, your buyer pays you for the business and the rights that come with it. Ontario’s Act (s.5(8)) contemplates a transfer fee paid to the franchisor, in an amount set out in the franchise agreement or not exceeding the reasonable actual costs the franchisor incurs to process the grant. Check whether your agreement sets a transfer fee and who pays it.

What to check in your agreement

• Whether the initial franchise fee is described as refundable, in whole or part, on a transfer.
• Whether prepaid royalties, advertising contributions or technology fees are credited or returned.
• Whether the franchisor holds any deposit or security, and when it is released.
• What the transfer fee is, who pays it, and what it covers.
• Whether remaining term is reflected in the price, since the remaining term is something to weigh in the price.

Franchising is regulated province by province, and the Canadian Franchise Association notes important differences between jurisdictions, so a statutory refund right in one province may not match another’s. If you believe your own purchase was affected by a disclosure failure, that is a separate question for a lawyer.