How do I buy a franchise in Ontario?

Whether the unit you want is in Mississauga, Ottawa or Thunder Bay, buying a franchise in Ontario is governed by a provincial statute, the Arthur Wishart Act (Franchise Disclosure), 2000. The Canadian Franchise Association describes it as one of the most influential franchise statutes in Canada, and notes that franchise disclosure is regulated at the provincial level rather than through a single national law. What follows is Ontario’s rule only; if you are looking at a unit in another province, check that province’s law. For the national overview, see How do I buy a franchise in Canada?

The disclosure document and the 14-day period

Section 5 of the Act says a franchisor shall provide a prospective franchisee with a disclosure document, and the prospective franchisee shall receive it not less than 14 days before the earlier of signing the franchise agreement or any other agreement relating to the franchise, or paying any consideration to the franchisor or its associate. A deposit is excluded from that second trigger only if it meets the Act’s conditions, which include that it is refundable without any deductions. The document must be one document, delivered at one time. Subsection 5(1.1) takes some agreements out of the signing trigger, such as one that only keeps information confidential or designates a location, site or territory, subject to subsection 5(1.2). The section also has exemptions in subsection 5(7), so confirm with a lawyer whether your purchase falls within one.

When the Act applies, and what must come with the document

The Act applies to a franchise agreement, and to the business run under it, if that business is to be operated partly or wholly in Ontario (section 2). The disclosure document must contain all material facts, financial statements as prescribed, and copies of all proposed franchise agreements and other agreements relating to the franchise that you will be asked to sign (section 5(4)). If a material change happens after you receive the document, the franchisor must give you a written statement of it as soon as practicable, before the earlier of your signing or paying consideration (section 5(5)). Read the agreements in the package, not only the summary.

What the disclosure document must contain

Ontario Regulation 581/00 lists what every disclosure document must include. It requires the franchisor’s principal business address and, if that is outside Ontario, a person authorized to accept service in Ontario. It also requires a description of any exclusive territory granted to the franchisee, a list of the locations of all franchises in Ontario of the type being offered, with each franchisee’s name, business address and telephone number, and the name, last known address and telephone number of each Ontario franchisee of that type who left the system within the last fiscal year immediately preceding the date of the document. It also calls for the franchisor’s financial statements, subject to an exemption for franchisors that meet the regulation’s criteria, and a signed certificate. If the agreement grants exclusive territory rights, the regulation also requires a description of the franchisor’s policy, if any, on whether keeping those rights depends on reaching a specific level of sales, market penetration or other condition, and under what circumstances the rights may be altered. Call those franchisees and ask about territory.

Your right to rescind

Under section 6, a franchisee may rescind the franchise agreement, without penalty or obligation, no later than 60 days after receiving the disclosure document, if the franchisor failed to provide it or a statement of material change in time, or if its contents did not meet the Act’s requirements. A franchisee may rescind no later than two years after entering the agreement if the franchisor never provided the document. Note the date you received yours. These time limits are the Act’s own, so do not rely on a summary: take them to your lawyer.

Fair dealing, association and Ontario law

Every franchise agreement imposes on each party a duty of fair dealing in its performance and enforcement (section 3). A franchisee may associate with other franchisees and may form or join an organization of franchisees (section 4). Section 10 makes void a provision that purports to restrict the application of Ontario law, or to restrict jurisdiction or venue to a forum outside Ontario, for a claim otherwise enforceable under the Act in Ontario. If the franchisor is based elsewhere, ask your lawyer how that section applies.

Who to bring in during the 14 days

The Canadian Franchise Association says it is critical to carry out proper and thorough due diligence with the help of franchise professionals, including a franchise lawyer, accountant and banker. Book them before the document arrives, so the 14 days are spent reviewing rather than looking for advisers. If you are buying an existing location from its current franchisee, ask the franchisor in writing which disclosure it will give you and when.

• The date you received the disclosure document, and proof of how it was delivered.
• Every agreement the franchisor expects you to sign, in the package, not promised later.
• The list of Ontario franchisees, including those who left the system in the last fiscal year, and notes from calls with them.
• The territory description and the franchisor’s stated policy on altering it.
• Written confirmation of any deposit terms before you pay anything.