What must a franchisor disclose before I sign a franchise agreement?

Franchise disclosure is a statutory right in some provinces, not a courtesy. The idea is to put what a buyer needs to judge the franchise into one document before any money or signature changes hands. Ontario’s Arthur Wishart Act is the statute this answer follows, and the other provinces with franchise statutes also require a disclosure document.

What the document must contain

Under the Wishart Act the document must contain all material facts, financial statements as prescribed, copies of every proposed franchise agreement and related agreement you will sign, statements prescribed to help you make an informed investment decision, and any other prescribed information and documents. The regulations made under the Act fill in the detail. All of it must be set out accurately, clearly and concisely, and delivered as one document at one time.

When it has to reach you

The franchisor must make sure you receive the document a minimum number of days before the earlier of two events: you sign the franchise agreement or any related agreement, or you pay the franchisor or its associate anything relating to the franchise. Certain deposits are carved out. If a material change occurs before either event, the franchisor must also give you a written statement of material change.

What follows if disclosure is late, missing or wrong

A franchisee can rescind the franchise agreement if the document was not provided in time or did not meet the Act’s requirements, and the franchisor must then refund money and compensate for certain losses. If a misrepresentation in the document causes a loss, the franchisee has a right of action for damages against the franchisor and others, including anyone who signed the document, and is deemed to have relied on it.

Franchises outside Ontario

Alberta, British Columbia, Manitoba, New Brunswick and Prince Edward Island each have their own franchise statute with a disclosure document requirement, and each has its own text. A franchise governed by none of these statutes may have no franchise-specific disclosure duty, so ask a lawyer which law applies. Resales work differently; see what a resale buyer receives.