What should I know before buying an existing franchise unit?

An existing franchise unit is two purchases in one: the right to operate under the franchisor’s system, and a local business with its own history. The first is governed by the franchise agreement and, where it applies, franchise disclosure law. The second is what the previous owner actually ran, and parts of it, such as inspection results and privacy records, are checked separately from the franchisor’s paperwork.

What the franchisor’s side raises

The franchisor’s side raises questions such as whether it must approve the transfer, what the agreement says about renewal and fees, and whether disclosure law applies to a resale. Read who has to approve a franchise resale and how Ontario’s Arthur Wishart Act applies to a resale first, because the unit’s record matters little if the franchisor will not approve the buyer.

The unit’s inspection history

Some local health units publish inspection results for food businesses. Simcoe Muskoka’s says its inspection results are available online, and Middlesex-London’s says results for restaurants and other food premises in London and Middlesex County are public online, with summary signs at participating premises. These are two separate health units’ systems, so find the one that covers the unit’s address, read the history rather than the latest result alone, and ask the seller about repeat issues.

Customer data and breach records

A unit that takes payments, bookings or loyalty sign-ups holds personal information. The Privacy Commissioner of Canada says businesses subject to PIPEDA must report breaches that pose a real risk of significant harm, notify the people affected and keep records of all breaches. Ask the seller for that record, and ask which entity, the unit or the franchisor, controls the customer database. Take any gap in either answer to your lawyer before closing.