What is a franchise disclosure document and why does it matter?

A franchise disclosure document is the written package of information a franchisor gives a person who is thinking of buying into the franchise. Ontario’s Arthur Wishart Act (Franchise Disclosure), 2000 requires one, and so do the franchise statutes in British Columbia and Alberta. The Canadian Franchise Association says franchise disclosure is regulated at the provincial level, not by a single national law. If you are weighing a franchise, this is the document to read before you sign or pay.

When you must receive it

Under the Ontario Act, the franchisor must provide the document and the prospective franchisee must receive it not less than 14 days before the earlier of two events: signing the franchise agreement or any other agreement relating to the franchise (other than certain agreements described in subsection 5(1.1)), and paying any consideration to the franchisor or its associate relating to the franchise. Some deposits are carved out, and subsection 5(7) lists cases the section does not apply to, such as some grants of a franchise by a franchisee, so read section 5. The Ontario Act also says the document must be one document, delivered at one time. British Columbia’s Act and Alberta’s Franchises Act each use a 14-day period as well.

What it has to be like

The Ontario Act requires all the information in the document to be set out accurately, clearly and concisely. British Columbia’s Act goes further: in addition to the statements, documents and information it lists, the document must include all material facts. Ontario also requires a written statement of any material change, delivered as soon as practicable after the change and before the earlier of the same two events. When you read a document, check that it is dated and delivered as the statute requires, and ask about anything that looks missing.

Why it matters to you

Under the Ontario Act, a franchisee may rescind the franchise agreement, without penalty or obligation, no later than 60 days after receiving the document, if the franchisor failed to provide it or a statement of material change within the time required by section 5, or its contents did not meet the requirements. If the franchisor never provided it, the window runs to two years after the agreement was signed. British Columbia’s Act has the same two periods. Ontario also gives a franchisee who suffers a loss because of a misrepresentation in the document a right of action for damages, subject to the defences in section 7. Each right has conditions, so a lawyer should read the section that applies to you.

Check which province’s rules apply

The Canadian Franchise Association says several provinces have franchise disclosure legislation and that there are important differences between jurisdictions. See Franchise disclosure law in Alberta and Franchise disclosure law in British Columbia for those provinces. If you are buying an existing franchised location from another franchisee, see What disclosure does a franchise resale buyer get?.