- Disclosure is not always required on a resale by an existing franchisee, but the exception has conditions, including that the sale is not effected by or through the franchisor.
- If disclosure was required and came late or was deficient, you may rescind within 60 days of receiving it; if none was given, the window is two years.
- Transfer approvals and fees are set by the franchise agreement, so read the transfer, renewal and termination terms before you commit.
Buying an existing franchise from a current franchisee can feel safer than starting from scratch. The location is open, the customers exist and the systems are in place. But you are stepping into a contract with a franchisor you did not choose, and the rules about what you must be told are not always the same as for a brand new franchise.
This article explains how Ontario's Arthur Wishart Act (Franchise Disclosure), 2000 treats resales, what the franchisor's involvement can change, what remedies exist if something goes wrong, and what to check in the agreement before you sign.
Does a resale come with a disclosure document?
The general rule is that a franchisor must give a prospective franchisee a disclosure document at least 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.
There is an exception for resales by an existing franchisee. The disclosure duty does not apply if the seller is not the franchisor, its associate, or a director, officer or employee of either; the sale is for the seller's own account; for a master franchise, the entire franchise is sold; and the sale is not effected by or through the franchisor.
That last condition matters. If the franchisor runs the sale process or is the channel for the transfer, the exception may not be available. Whether that is the case depends on the facts and the paperwork, so it is worth having a lawyer review it before you rely on either view.
What the franchisor's role usually looks like
Most franchise agreements say what happens when a franchisee wants to sell. Common themes include the franchisor's approval of the buyer, training, new agreements and some form of charge. Those terms come from the contract, not from a general rule, so the actual wording controls.
When disclosure is required, the document itself must describe transfer, renewal and termination conditions, along with costs and copies of the proposed agreements. Even where it is not required, those are the same topics you should insist on understanding.
What to check in the franchise agreement
- Whether the franchisor must consent to a sale, and on what grounds it can refuse
- Any transfer fee, training charge or other cost the franchisor can require from you or the seller
- Whether you will sign a new agreement or take over the seller's, and how many years remain
- Renewal terms, since a renewal with no interruption and no material change is itself an exception to disclosure
- Your exclusive territory, if any, and supplier restrictions
- Advertising fund contributions and volume rebate policy
- Termination conditions and what happens to your investment if the agreement ends
- A current list of franchisees, and whether the seller's results look typical
Also ask the seller for documents showing the actual financial performance of the location, and confirm that any amounts owing to the franchisor or suppliers are settled at closing.
Your rights if something is missing or wrong
The Act gives franchisees several protections. Which one applies depends on whether disclosure was required and what went wrong.
| Situation | Your right | Time limit |
|---|---|---|
| Disclosure came late, or did not meet the requirements | Rescind the agreement without penalty or obligation | No later than 60 days after receiving the document |
| No disclosure document was ever given | Rescind without penalty or obligation | No later than two years after entering the agreement |
| You lost money because of a misrepresentation or a failure to comply with s. 5 | Sue for damages against the franchisor, its agent, broker, associate and those who signed the document | Get advice promptly |
A notice of rescission must be in writing and delivered to the franchisor personally, by registered mail, by fax, or by another prescribed method. After rescission, the franchisor or its associate must within 60 days of the effective date refund money received (other than for inventory, supplies or equipment), buy back inventory, supplies and equipment at the purchase price, and compensate you for certain losses.
There is a limit. A person is not liable for a misrepresentation if they prove you acquired the franchise knowing of it. If you learn something concerning during due diligence, record it and raise it rather than assuming it is covered.
Protections that apply to every franchise
- Each party owes a duty of fair dealing, including good faith and reasonable commercial standards
- A franchisor cannot restrict or penalize franchisees for forming or joining a franchisee organization
- A waiver or release of your rights under the Act is void, and clauses that move jurisdiction or venue outside Ontario are void for claims enforceable under the Act
If a document asks you to confirm you received everything or to give up your rights, do not treat that as the end of the discussion. Ask a lawyer how it fits with these protections.
What to do next
- Get the full franchise agreement and any transfer documents before paying a deposit
- Ask in writing whether the franchisor is involved in the sale and whether it will deliver a disclosure document
- Note the date you receive any disclosure so the deadlines are clear
- Ask what approvals and charges the franchisor requires, and get them confirmed in writing
- Have a lawyer review the purchase agreement and the franchise terms before you sign or pay anything
Frequently asked questions
Can the franchisor refuse to approve me as the buyer?
That depends on the wording of the franchise agreement, which usually sets out the approval process. Check the transfer clause and ask a lawyer how it applies to your deal.
Do I get a 14-day waiting period when buying from a current franchisee?
Not necessarily. The 14-day rule applies when disclosure is required, and a resale by an existing franchisee can fall within an exception if all of its conditions are met. If the franchisor is involved in the sale, the answer may change.
How long do I have to cancel if disclosure was late?
You may rescind no later than 60 days after receiving the disclosure document if it came late or did not meet the requirements. If none was ever given, the limit is two years after entering the franchise agreement.
Can I sign away my rights under the Arthur Wishart Act?
A purported waiver or release of your rights under the Act is void. Still, have a lawyer review any document that tries to do this.
Sources
- Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c. 3 (e-Laws) — Ontario e-Laws
- Ontario.ca – Franchising information for buyers and owners — ontario.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
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