Buying a Pizza Franchise in Ontario: What to Check First

A pizza franchise can look simple: a known name, a menu, a system. But you are still signing a long contract, often paying a deposit and fees, and agreeing to rules about where you buy your cheese, dough and equipment. Most of what you need to know should be in writing before you commit.

This article walks through what Ontario's franchise law says you must receive, what to look for in the disclosure document and the franchise agreement, and what rights you have if the paperwork falls short. It is general information, not advice on your deal.

The 14-day rule: no signing or paying too early

Ontario's Arthur Wishart Act (Franchise Disclosure), 2000 requires a franchisor to give a prospective franchisee a disclosure document at least 14 days before the buyer signs an agreement or makes any payment. The rule applies to a franchise purchase generally, so it is your starting point for a pizza brand.

If something material changes after you receive the document, the franchisor must disclose it before you sign or pay. Ontario.ca describes a material change as one that could reasonably be expected to have a significant negative effect on the franchise's value or on your decision.

In practical terms, treat pressure to sign quickly or pay a deposit now to hold the territory as a warning sign. Use the 14 days to read, ask questions and get advice.

What the disclosure document should contain

Ontario.ca says the disclosure document covers the franchisor's business background, litigation history, bankruptcy or insolvency information and financial statements. It must also cover the offer itself.

The document must contain all material facts. A material fact is information about the franchisor's or franchise system's business, operations, capital or control that would reasonably be expected to have a significant effect on the value or price of the franchise.

Supply contracts, territory and costs

For a pizza business, supply terms often drive your margins. Look for whether you must buy ingredients, packaging or equipment from named suppliers, and how any volume rebates are handled, since the document must describe required suppliers and the rebate policy. Ask who keeps rebates and how that affects your costs.

On territory, check whether any exclusive territory is stated and exactly how it is defined. If the document is silent or vague, ask for clarity in writing before you sign.

On costs, compare the list of establishment costs with real quotes for the premises, build-out and equipment. Gaps between the two are worth raising with the franchisor and with your advisors.

Premises can be a tricky point. In one Court of Appeal case, a disclosure document that left out the head lease terms was not treated as no disclosure, because the franchise agreement's site-selection clause and opt-out rights dealt with the gap. Court rulings turn on their facts, so do not assume a missing item will help you or hurt you.

Check the whole package, including certificates

Look at the disclosure document together with the franchise agreement, because a court may read them together. Also confirm that the certificates are there. A missing certificate in the disclosure package has been held to be a fatal flaw, and a franchisee need not show it was unable to make an informed investment decision. Certificates attach personal liability to the signatories and must be signed and dated by specified persons.

• The disclosure document is dated and you can show when you received it
• The signed and dated certificates are included
• Financial statements are included, or the franchisor explains an exemption
• Required suppliers and rebate policy are explained
• Territory, renewal, transfer and termination terms are clear
• You have called several current and former franchisees from the list

Some large, established franchisors may be exempt from providing financial statements if they meet the criteria in Part III of O. Reg. 581/00. An exemption does not mean the government endorses the franchisor or its finances.

If disclosure falls short, and what to do next

If disclosure is late or does not meet the requirements, a franchisee can cancel without penalty or obligation up to 60 days after receiving the late or non-compliant document or material change statement. If there was no disclosure at all, a franchisee can cancel up to two years after entering the franchise agreement, and the franchisor then has 60 days to refund the franchisee's money.

The two-year right applies only where disclosure was so inadequate that it amounts to no disclosure. A document does not become a disclosure document just because it is labelled one. A franchisee who suffers a loss because the document was incomplete or contained a misrepresentation may sue for damages.

The government does not review or approve franchisors or their disclosure documents, disputes are resolved through the courts, and Ontario.ca recommends advice from a lawyer or financial advisor. Before paying anything, give the full package to a lawyer and an accountant, note your dates, and keep every email from the franchisor.

Frequently asked questions