Resale franchise disclosure in Ontario: if the exemption fails
Caleesis TeleshFounder & Principal Lawyer
Buying a franchise from another franchisee can skip the disclosure document, but the exemption can disappear if the franchisor is involved in the resale. The Court of Appeal ruled on this in July 2025; if the disclosure rules were broken, you may be able to undo the purchase. Our guide to buying a franchise in Ontario covers the ordinary rules.
What the Act says about resales
Under section 5 of the Arthur Wishart Act (Franchise Disclosure), 2000, a franchisor must give a prospective franchisee a disclosure document at least 14 days before the earlier of signing an agreement relating to the franchise or paying consideration to the franchisor or its associate. Our buying guide covers the exceptions, including confidentiality agreements and refundable deposits. Section 5(7)(a) exempts one situation from the disclosure duty: the grant of a franchise by a franchisee. Four conditions apply. The seller cannot be the franchisor, an associate of the franchisor (a person or company connected to it, such as a parent or affiliate), or a director, officer, or employee of either. The sale has to be for the seller's own account. A master franchise, which lets its holder grant franchises to others, has to be sold in full. And the grant cannot be "effected by or through the franchisor."
The Act then narrows that last condition. Under section 5(8), a grant is not effected by or through the franchisor merely because the franchisor has a right, exercisable on reasonable grounds, to approve or refuse the sale, or because a transfer fee has to be paid, whether the agreement sets the amount or it matches the franchisor's reasonable actual costs of processing the transfer. Section 12 puts the burden of proving an exemption on the person who claims it. 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.
What happened in the Wild Wing case
The case is 2355305 Ontario Inc. v. Savannah Wells Holdings Inc., 2025 ONCA 505, decided in July 2025 by Justices Thorburn, Copeland, and Monahan. It arose from the sale of a Wild Wing restaurant franchise. Law firm reports of the decision describe it this way; the full text is on CanLII. The buyers wanted to join the Wild Wing system. A franchisor representative encouraged them to buy an existing franchise, arranged a tour of the location, and passed along financial information from the selling franchisee. Nobody gave them a disclosure document. They bought the franchise and signed a new franchise agreement with the franchisor. After about 18 months of operating at a loss, they served a notice of rescission and sued.
The franchisor and its associated companies argued the resale exemption applied, since the buyers had bought from another franchisee. The trial judge, in Jayasena Management Corp. v. Savannah Wells Holdings Inc., 2023 ONSC 1008, disagreed, ordered the franchisor side to pay, and awarded substantial indemnity costs. The Court of Appeal dismissed the appeal on all three grounds.
What the Court of Appeal decided
- The new agreement was a grant by the franchisor. The franchisor argued that signing a new franchise agreement was a different act from granting a franchise. The court disagreed, which put the franchisor on the granting side of the sale.
- The franchisor took an active part. The court upheld the trial judge's finding that the franchisor took an active part in arranging the sale, including through an intermediary the judge found was acting as its agent.
- Rescission left the equipment at the location. The franchisor argued that damages should shrink by about $320,000 because the franchisees had not returned the restaurant's equipment. The court held that on rescission the franchisees only have to leave the equipment at the location, which they did.
- The costs award stood. The court agreed that substantial indemnity costs were proper at trial, because the buyers had beaten a settlement offer and the franchisor parties had behaved poorly. It added $20,000 in costs for the appeal.
Reports put the trial damages and costs at close to $1 million together, and the totals vary a little between summaries, so read the decision if the figure matters to you. The decision turned on these facts. It does not say that any contact between franchisor and buyer ends the exemption. Section 5(8) still protects a franchisor that only approves the sale on reasonable grounds and collects a transfer fee.
What counts as franchisor involvement
The court's standard is strict. As law firm summaries put it, the exemption is available only where the franchisor is essentially passive, reduced to consenting to the sale and collecting a transfer fee (see the Aird & Berlis summary). Earlier Ontario decisions point the same way. In 2256306 Ontario Inc. v. Dakin News Systems Inc., 2016 ONCA 74, the Court of Appeal held that a franchisor that chose to require a franchise agreement from a resale buyer could not rely on the exemption. As a buyer, you can ask the questions the court's reasoning suggests:
- Who introduced you to this location? A franchisor representative who steers you to a specific store looks different from a broker the seller hired.
- Does anyone helping you find the location, such as a broker or realtor, have ties to the franchisor? In the Wild Wing case the trial judge found that an intermediary was acting as the franchisor's agent.
- Who supplied the numbers? Sales data and financial statements that came from the franchisor's staff, rather than from the seller, point toward involvement.
- Who arranged the visit? A franchisor-arranged tour of the premises was part of the record in this case.
- What do you sign at the end? Many systems ask a resale buyer to sign the franchisor's current form of agreement. In this case the court treated the new agreement as a grant by the franchisor, so any resale that ends that way deserves a close look.
- What does the franchisor charge and require? A transfer fee tied to processing costs is covered by section 5(8). New conditions, extra fees, or training and renovation demands are worth listing for your lawyer.
What the disclosure document would have told you
The document exists to answer questions you would otherwise put to the seller and take on faith. Section 5(4) requires all material facts, prescribed financial statements, copies of every agreement you will sign, and the other information the regulation lists. In practice that means the franchisor's financial position, its litigation and insolvency history, the costs you will pay, the territory you are given, limits on where you buy supplies, and contact details for other franchisees. A resale buyer without that package is relying on the seller's numbers and the franchisor's goodwill. When the franchisor also steers the sale, the party carrying the statutory disclosure duty is the one shaping what the buyer sees.
What to do before you sign as a resale buyer
Speak to a lawyer before you ask or sign anything, so that the wording of your request does not compromise your rights. Then ask the franchisor in writing whether it will deliver a disclosure document for your purchase. If it says no, ask which clause of section 5(7) it relies on and why. A franchisor sure of its exemption can answer in a sentence, and the reply goes into your file. Ask for the disclosure document either way, since the 14-day period runs from the day you receive it.
Keep a record of who did what: emails, texts, and notes from the introductions, the tour, and the request for information. A lawyer working out whether the exemption holds needs that trail, and it is far easier to assemble while the deal is live. Section 11 voids a franchisee's waiver of rights under the Act, so a document asking you to give any of them up should reach a lawyer before you sign it. Have a lawyer read the purchase agreement, the assignment or new franchise agreement, and the lease before you commit. If the seller is a corporation, our post on buying and selling a business in Ontario covers the diligence that applies to any business purchase, disclosure exemption or not.
If you already bought
Section 6 gives you two clocks. If the franchisor gave you a disclosure document that was late or did not meet the requirements of section 5, you can rescind within 60 days of receiving it under section 6(1). If you never received one, you can rescind within two years of entering the franchise agreement under section 6(2), and that right applies only if no disclosure document was ever provided. If a late or deficient document arrives, the 60-day clock in section 6(1) applies, so get advice quickly. Rescission requires written notice to the franchisor, and the franchisor then owes you a refund and compensation for inventory, equipment, and losses set out in section 6(6). Rescission depends on the franchisor having broken its disclosure duties. A struggling business is not a ground on its own, so the first question is whether the exemption held on your facts. Take the paperwork to a lawyer promptly.
Resales feel simpler than new franchises, and they carry the same long-term agreement. Our corporate practice reviews franchise purchases, resale and new, including the paper trail that decides whether a resale exemption holds. To have a lawyer read yours, book a one-hour consultation.
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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.
LL.B.B.A., York UniversityMember, Law Society of Ontario
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