Franchise deposit

If a franchisor asks for money before the disclosure document has been delivered, the deposit rules decide whether paying it counts as the payment that the disclosure deadline is measured against. See whether there is a cooling-off period when buying a franchise.

How the provinces treat it

Ontario’s Arthur Wishart Act, s. 5(1)(b), excludes a deposit from the payment trigger if it does not exceed the prescribed amount, is refundable without any deductions, and is given under an agreement that in no way binds the prospective franchisee to enter into a franchise agreement. Alberta’s Franchises Act, s. 4, uses the term “fully refundable deposit” with the same three conditions. British Columbia’s Franchises Act, s. 5(13), has a similar exclusion. The disclosure duty itself is subject to the exemptions in Ontario’s s. 5(7), Alberta’s ss. 5 and 6 and British Columbia’s s. 5(8). Each Act leaves the limit to be prescribed by regulation, so read the current one. The related franchise fee is a separate payment.

What to check or ask

• Whether the deposit agreement says in writing that the deposit is refundable in full
• Whether it says the buyer is not committed to sign a franchise agreement
• Whether the amount is within the limit in the provincial regulation
• When the disclosure document was delivered compared with the payment