How does the Arthur Wishart Act apply when buying a franchise resale?

The Arthur Wishart Act (Franchise Disclosure), 2000 is Ontario’s franchise statute. It applies to a franchise agreement where the franchisee’s business is, or is to be, operated partly or wholly in Ontario. Resale buyers often assume the whole Act applies to them as it would to a first-time franchisee. It does not: the disclosure document can fall away on a resale, while other protections stay.

When a resale needs no disclosure document

The Act puts the disclosure duty on the franchisor, who must give a prospective franchisee a disclosure document before they sign or pay. It exempts the grant of a franchise by a franchisee where, among other conditions, the seller is not the franchisor, an associate of it, or a director, officer or employee of either, the grant is for the seller’s own account, and the grant is not effected by or through the franchisor. A grant is not effected through the franchisor merely because the franchisor can approve or refuse it on reasonable grounds, or because a transfer fee is payable that the agreement sets or that is capped at the franchisor’s reasonable actual costs.

When the franchisor is involved

The exemption turns on whether the grant is effected by or through the franchisor, and the Act lists only some things that do not count. If the franchisor markets the location, brokers the sale or grants a new agreement itself, whether the exemption holds is a question of fact for a franchise lawyer.

What still applies on a resale

Every franchise agreement imposes a duty of fair dealing on each party, including good faith and reasonable commercial standards, and a party can sue for damages if it is breached. Franchisees have a right to associate, and a provision restricting it is void. A purported waiver of a right under the Act is void, as is a clause that moves a claim under the Act to a forum outside Ontario.

If disclosure was required and missed

Where the franchisor had to disclose and did not do so in time, or the document fell short, the franchisee can rescind the franchise agreement within a time limit the Act sets and can claim damages for losses from a misrepresentation or non-compliance. British Columbia and Alberta have their own franchise statutes, so a resale outside Ontario follows different rules. See also who has to approve a franchise resale.