Franchise fee (initial fee)

The Canadian Franchise Association refers to an initial franchisee fee as one of the payments a franchisee makes to the franchisor, alongside ongoing royalties. In Ontario the fee must appear in the disclosure document, as set out below, and in a resale a buyer can ask what the franchisor will charge. What costs and fees are involved in buying a franchise in Canada? covers where costs must be disclosed.

How the law uses the term

Alberta’s Franchises Act defines franchise fee in section 1, and the definition does not cover a purchase of a reasonable amount of goods at a reasonable bona fide wholesale price, among other exclusions. Ontario’s regulation 581/00 requires the disclosure document to list the franchisee’s costs of establishing the franchise, including the amount of any deposits or franchise fees, whether they are refundable and, if so, under what conditions. Other provinces use the term in their own Acts and regulations.

What to ask

• Which payments the agreement treats as the fee, and which are other charges
• Whether any part is refundable, and on what conditions
• Whether a resale buyer owes a fee to the franchisor, such as a transfer fee