Buying a franchise in Ontario? Read this before you sign

A franchise sells you a proven system, a recognized brand, and a head start most independent startups never get. 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 exists because that bargain went badly for enough people. The protections it created only work if you use them before you sign.

Ontario franchises are governed by the Arthur Wishart Act (Franchise Disclosure), 2000. Its central mechanism is disclosure: the franchisor must deliver a franchise disclosure document, the FDD, at least 14 days before you sign any agreement or pay any money. Those 14 days are your due diligence window, and the FDD is the richest source of information you will ever get about this system.

Read it for the franchisor's financial statements, the litigation and insolvency history of the company and its principals, every fee you will pay, the territory you are actually granted, restrictions on where you buy supplies, and the estimate of your total investment, which runs well beyond the initial franchise fee once construction, equipment, inventory, and working capital are counted. Most valuable of all is the list of current and former franchisees, with contact information. Call them. Ask what they earn, what surprised them, and whether they would buy again. Departing franchisees in the list are a signal worth chasing down, not a footnote.

The Act backs disclosure with a remedy that should frighten careless franchisors. If the FDD was delivered late or its contents fall materially short of the requirements, you can rescind, meaning unwind the whole deal, within 60 days of receiving it. If no disclosure document was delivered at all, the window stretches to two years from signing. On rescission the franchisor must buy back inventory, supplies, and equipment and compensate your losses in setting up the business.

Ontario courts have treated deficient disclosure seriously. A document so flawed that it fails to do the job of disclosure can be treated as no disclosure at all, opening the two-year window. But be clear about what rescission is: litigation, not a refund counter. It means suing a franchisor who is meanwhile running your termination clauses, and collecting depends on the franchisor having money when you win. Rescission is the backstop. The 14 days of reading are the actual protection.

Franchise agreements are drafted by the franchisor, for the franchisor, and most franchisors will change little for a single-unit buyer. That does not make legal review pointless; it changes what the review is for. You are not redlining. You are finding out exactly what you are agreeing to, pricing the risk, and walking away from the deals where the answer is unacceptable. 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 almost always 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. Most franchisors require exactly that.
• 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.

A franchise is not an independent business with a logo on top. 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 will spot them.
2. 02Call at least five current franchisees and two former ones from the FDD lists.
3. 03Have an accountant stress-test the franchisor's numbers against what franchisees actually told you.
4. 04Confirm the territory, the total investment figure, and every recurring fee in writing.
5. 05Understand 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 an excellent business, provided you buy it with eyes open. Telesh Law Firm Professional Corp reviews disclosure documents and franchise agreements before Ontario buyers commit, which is the only time the review can change the outcome.

• For businesses
• Evidence & documents
• Deadlines

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

Full profile→LinkedIn↗