Franchising information for buyers and owners
Learn how the law helps potential franchisees make informed decisions about investing and gives existing franchisees the right to associate with each other.
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Information for people considering buying a franchise
The Arthur Wishart Act (Franchise Disclosure), 2000, was put in place to ensure owners (franchisors) give potential buyers (franchisees) detailed information about the franchise before the buyer signs a contract or makes any payments.
Get professional advice
Before you sign a franchise agreement or make any payments to the franchisor, you should consult with legal and financial professionals who are independent from the franchisor.
Ask your financial advisor or accountant to review all disclosed financial documents.
Ask your lawyer to review all materials, contracts and proposals, and ensure you understand:
- when your agreement could be terminated and you could lose your franchise
- if you have the right to renew, since franchise agreements can be for a limited amount of time
The government is not involved in the review or approval of franchisors or their disclosure documents. Disputes about franchise agreements are settled through the courts.
The disclosure document
Under the law, the franchisor is required to provide a disclosure document at least 14 days before a franchisee signs an agreement or makes any payment to a franchise.
The disclosure document will include information about the franchisor including:
- business background
- litigation history
- bankruptcy or insolvency information
- financial statements
It will also include information about the franchise offer, such as:
- costs (e.g., deposits or fees)
- copies of proposed franchise agreements
- a description of any exclusive territory
- restrictions (e.g., obligations to purchase from certain suppliers)
- the franchisor’s policy on volume rebates
- conditions of termination, contract renewal and transfer of franchise
- a description of the franchisor’s mediation process, if one is used
- training and other assistance programs
- advertising funds (e.g., if the franchisee is required to contribute to one)
- a list of their current and former franchisees
The franchisor must tell you if there is a material change
A “material change” is something that could reasonably be expected to have a significant negative effect on the value of a franchise or on your decision to buy it. Before you sign the agreement or make any payments, the franchisor must tell you if there have been any material changes since you received the disclosure document.
Your rights if the disclosure document is late or incomplete
If a disclosure document or a statement of material change is late or otherwise doesn’t meet the act’s requirements, the franchisee can cancel the agreement without penalty or obligation up to 60 days after receiving it.
If a disclosure document is not provided, the franchisee may cancel the agreement without penalty or obligation up to two years after entering into the franchise agreement.
If the franchisee suffers a loss because the disclosure document or statement of material change were incomplete or included a misrepresentation, the franchisee has the right to take legal action for damages.
If the contract is cancelled the franchisor has 60 days to refund the franchisee’s money.
Exemptions for disclosing financial statements
Some large, established franchisors do not have to provide financial statements if they meet certain criteria, which are detailed in Part III of O. Reg. 581/00.
If the franchisor is exempt from disclosing financial documents:
- it does not imply that the government endorses the franchisor or its financial status
- you may wish to ask your lawyer or financial advisor for advice on how to get a report on the franchisor’s business information
Talk to other franchisees
The disclosure document includes a list of current and former franchisees. You can learn about how a franchisor operates by talking to some of them before you invest. Some questions to ask include:
- Were there unexpected costs or additional unexpected investments?
- Do you have to purchase a minimum amount of merchandise/materials each year?
- If there is a minimum sales quota, how difficult is it to achieve?
- Are products/equipment supplied by the franchisor satisfactory and delivered on time?
- Did you have adequate support when the business first opened?
- Was the training adequate, and were employees included?
- How are disagreements with the franchisor handled?
- If you could change anything in your contract what would it be?
- What do you like/dislike about the franchisor?
- How long did it take you to start making money, and was it more or less than you expected?
- Would you enter into an agreement with this franchisor again?
Information for current franchisees
The Arthur Wishart Act (Franchise Disclosure), 2000 encourages fair dealing and gives franchisees the right to associate and share information with other franchisees.
Duty of fair dealing
Under the act, the “duty of fair dealing” requires all parties to a franchise agreement to act in good faith and comply with reasonable commercial standards.
If any party does not live up to the duty of fair dealing, the other party or parties have the right to take legal action.
The right to associate
The law gives every franchisee the right to associate with other franchisees (e.g., to form or join an organization of franchisees) even if a contract says this is not allowed.
If a franchisor or a franchisor’s associate interferes with this sort of association, a franchisee can take legal action for damages.