Buying a franchise in Ontario? Read this before you sign

A franchise sells you a proven system, a recognized brand, and a head start over building a brand from nothing. It also sells you a long-term contract drafted entirely by the other side, obligations that run for a decade or more, and a business you operate but do not fully control. Ontario's franchise legislation gives buyers disclosure and remedies because franchise agreements are drafted by the franchisor. Those protections help only if you use them before you sign.

If a franchisor has sent you a franchise disclosure document (FDD), write down the day you received it, because the 14-day review period runs from that date. Do not sign anything or pay anything beyond the exceptions described below. Line up a franchise lawyer and an accountant now, since both reviews have to fit inside those 14 days, and use the "Before you commit" list near the end as your order of work.

Ontario franchises are governed by the Arthur Wishart Act (Franchise Disclosure), 2000↗. Its central mechanism is disclosure. The franchisor must give you the FDD, and you must receive it at least 14 days before the earlier of two events. The first is signing the franchise agreement or any other agreement relating to the franchise. The second is paying the franchisor or its associate (a person or company connected to it, such as a parent or affiliate) any money relating to the franchise. Those 14 days are your due diligence window, and the FDD is the fullest source of information you will get about this system.

The document has to arrive as one document, delivered at one time, so a franchisor cannot send the financials in week one and the agreement in week two. If something changes after delivery, the franchisor owes you a written statement of material change before you sign or pay. Regulation 581/00 has allowed electronic delivery since 2016 if you can view, store and print the document, it has no links to outside content, it includes an index of its files, and you acknowledge receipt in writing.

The Act sets the outline: all material facts, prescribed financial statements, copies of every agreement you will be asked to sign, and prescribed warning statements. Ontario Regulation 581/00↗ fills in the detail, and the province's franchising guide for buyers and owners↗ summarizes it in plain language, and our government links for franchise buyers and new business owners page collects the official sources. Use the regulation as a checklist when the document lands on your desk.

• Who the franchisor is: Its legal form, parent company, years in this line of business, and the background and five-year work history of every director and officer.
• Litigation and insolvency: Convictions from the last ten years for fraud, unfair or deceptive practices or breaches of franchise or business laws, plus any regulatory orders or civil findings on the same subjects (the regulation states no cutoff) and pending charges or actions, covering the franchisor, its associates and its directors, general partners and officers. It also lists bankruptcy and insolvency proceedings from the last six years involving the franchisor, its associates or its principals.
• Your costs, together in one place: Fees and deposits, whether they are refundable, an estimate of inventory, leasehold improvements and equipment with the assumptions behind it, and any payment to the franchisor, direct or indirect. Any earnings projection must state its basis and where the backup can be inspected.
• Restrictions and rebates: Where you must buy, what you may sell and to whom, and whether the franchisor or its associates receive rebates or commissions on your purchases and share them.
• Advertising fund: If you must contribute, the split between national campaigns, local advertising and money the franchisor kept over the last two fiscal years, plus its projection for the current one.
• Territory and proximity: Any exclusive territory, whether keeping it depends on hitting sales targets, and the franchisor's policy on placing other franchised or company-owned outlets near you.
• The exit terms: Termination, renewal and transfer conditions, plus a description of the mediation process if the franchisor uses one.
• Who has left, and who is still in: Contact details for every Ontario franchisee who left the system in the last fiscal year, the reasons for every closure in the last three, and a list of Ontario locations, extended to nearby outlets elsewhere if there are fewer than 20.
• A signed certificate: The document must certify that it contains no untrue statements and every required fact. Where the franchisor has more than one director or officer, at least two of them must sign.

Call the people on those lists. Ask what they earn, what surprised them, and whether they would buy again. Start with the former franchisees, who tend to give the blunter answers.

Ontario does not accept a franchisor's own summary of how it is doing. The regulation requires either an audited financial statement or a statement that has been through a review engagement, for the franchisor's most recently completed fiscal year, prepared to Canadian, U.S. or international accounting and assurance standards. If the year ended fewer than 180 days ago and nothing has been prepared yet, you get the previous year's statement. A franchisor that has operated for less than a year gives you an opening balance sheet.

Regulation 581/00 s. 11 lets a franchisor substitute a declaration for the statements if it meets a set of tests. It needs a net worth of at least $5,000,000 (or $1,000,000 if a corporation with $5,000,000 controls it), at least 25 franchisees operating in Canada or 25 in a single other jurisdiction, five years in the line of business, and no judgments, orders or awards against it, its associates or its principals for fraud, unfair or deceptive practices or franchise-law violations in the past five years. A franchisor controlled by a corporation that meets the franchisee-count and five-year tests can rely on the parent's record. Ask which route the franchisor claims and how you can check it.

If the franchisor does give you statements, hand them to an accountant. Read the audit opinion and the notes, compare the cash the franchisor holds with what it owes, and check that the entity signing your agreement is the one whose numbers you are reading. An underfunded subsidiary of a healthy parent gives you the parent's comfort without its guarantee.

Amendments passed in 2017 and a new regulation, O. Reg. 418/20, came into force on September 1, 2020. The e-Laws currency date is September 24, 2026, and the Act and Regulation 581/00 have been consolidated from September 1, 2020 with no later amendments shown, so these are the rules in force as of this update. Four changes matter to a buyer:

• Refundable deposits are allowed inside the 14 days: You may pay a deposit before the clock runs out if it is refundable without any deductions, the agreement behind it does not bind you to buy, and it is no more than 20% of the franchise fee, capped at $100,000. Any other payment inside the window breaches the 14-day rule.
• Confidentiality and site agreements are allowed: A franchisor can ask you to sign an agreement that only keeps information confidential, bars its use, or designates a location, site or territory for you. Signing one does not trigger the 14-day rule, because section 5(1.1) sets those agreements outside the timing clauses. Section 5(1.2) brings an agreement back inside if it restricts information that is already public, has been disclosed without a breach of the agreement, or is disclosed with the parties' consent, or if it stops you from sharing information with an organization of franchisees, other franchisees in the system or your professional advisors.
• Exemption thresholds moved: A franchise with a total initial investment of $15,000 or less is exempt from disclosure, and so is one above $3,000,000. Add up the whole investment, including leasehold improvements and equipment, before you accept a franchisor's word that disclosure does not apply.
• Financial statement standards were broadened: The accepted auditing and accounting standards now include international ones.

The Act backs disclosure with a remedy that gives the franchisor a strong reason to comply. If the FDD was delivered late, or its contents did not meet the requirements of section 5, you can rescind, meaning unwind the whole deal, within 60 days of receiving it. If no disclosure document was ever delivered, the window stretches to two years from entering the franchise agreement. Notice has to be in writing and delivered to the franchisor's address for service, or to a person the agreement designates. Personal delivery, registered mail, fax and prepaid courier all qualify, and a courier notice is treated as delivered on the second day after the courier drops it off.

On rescission the franchisor must, within 60 days of the effective date of the rescission, refund your money (other than what you paid for inventory, supplies and equipment), buy back inventory, supplies and equipment at the price you paid, and compensate you for losses in acquiring, setting up and operating the franchise. Section 7 gives a separate right to sue for damages over a misrepresentation in the document or a failure to comply with section 5. It reaches the franchisor, its agent and broker, its associates and every person who signed the disclosure document, and the Act deems you to have relied on a misrepresentation in the document.

Ontario courts set a high bar for treating a deficient document as no disclosure at all. In Raibex Canada Ltd. v. ASWR Franchising Corp., 2018 ONCA 62↗, the Court of Appeal held that the two-year right applies only where the document is so deficient that the franchisee was effectively deprived of the chance to make an informed investment decision, and that imperfect disclosure is different from none. A flawed document can still support the 60-day right, if you act in time, and a damages claim under section 7. Rescission means litigation against a franchisor who is meanwhile running your termination clauses, and collecting depends on it having money when you win. Use the 14 days to find problems before you sign, because a lawsuit is a poor substitute.

Buying an existing location from another franchisee can fall under the resale exemption in section 5(7) of the Act, which removes the disclosure requirement. It applies only when the seller is unconnected to the franchisor and the sale is not effected by or through the franchisor. Approving the buyer on reasonable grounds and charging a transfer fee set out in the agreement, or one that matches the franchisor's reasonable processing costs, do not count as involvement, and anything beyond that puts the exemption in doubt. Our post on resale disclosure in Ontario covers where the line falls.

Franchise agreements are drafted by the franchisor, for the franchisor, and most franchisors will change little for a single-unit buyer. Legal review still matters, because it tells you exactly what you are agreeing to and lets you price the risk or walk away. The clauses that decide how this investment ends:

• Term and renewal: How long is the initial term, and is renewal a right or a favour? Watch for renewal conditioned on signing the "then-current" agreement, which may be materially worse than the one you are reading.
• Termination: What lets the franchisor end the relationship, and how much cure time do you get? Default provisions are typically drafted broadly.
• Transfer and resale: Selling the franchise usually needs franchisor consent, often with a right of first refusal and a transfer fee. Your exit is only worth what these clauses allow.
• Personal guarantees: Incorporating to buy the franchise protects you only until the guarantee page puts you personally on the hook for the corporation's obligations. Many franchisors require it.
• Non-competition: Ontario's ban on employment non-competes does not apply here; franchise non-competes are commercial covenants and courts do enforce reasonable ones. Know what you are barred from doing, where, and for how long after you exit.

The operations manual, which the franchisor can typically update unilaterally, governs your suppliers, your menu or product mix, your hours, your renovations, and your marketing. You will likely contribute a percentage of revenue to an advertising fund whose spending you do not direct, on top of ongoing royalties. The Act helps at the margins: section 3 imposes a duty of fair dealing on both sides of the agreement, and section 4 protects your right to associate with other franchisees. But the structural reality stands. You are buying into someone else's system, and the system can change underneath you. Price that in when you compare a franchise against the profit projections that drew you in.

1. 01Have a franchise lawyer review the FDD and agreement inside the 14-day window. Deficiencies in disclosure are also your leverage, and a lawyer can review the document against the regulation for gaps.
2. 02Check the FDD against Regulation 581/00 item by item.
3. 03Call at least five current franchisees and two former ones from the FDD lists.
4. 04Have an accountant stress-test the franchisor's numbers against what franchisees actually told you.
5. 05Confirm the territory, the total investment figure, and every recurring fee in writing.
6. 06Understand your exit before your entry: what the non-compete, transfer, and termination clauses leave you with if this does not work.

A franchise can be a good business when you buy it with eyes open. We review disclosure documents and franchise agreements for Ontario buyers, and you can book a 30-minute consultation while the 14 days are still running, which is the stage where a review can still change your decision. Our corporate law practice also sets up the company that will hold the franchise, and our post on business structure in Ontario explains how to choose one.

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This article is general information, not legal advice, and does not create a solicitor-client relationship. It is current as at its publication date and is not revised as the law changes. For advice on your specific situation, book a consultation or call 416-639-0887.

Written by

Caleesis Telesh

Founder & Principal Lawyer

LL.B. · B.A., York University · Member, Law Society of Ontario

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