How to Cancel a Franchise Agreement for Late or Poor Disclosure in Ontario

You signed a franchise agreement and then realized the disclosure came late, looked thin or never arrived at all. You may be wondering whether you are stuck with the deal.

Ontario's franchise law gives franchisees a right to rescind in some situations. The deadlines are strict, so this article explains the two main routes and what you may recover.

Two routes to rescission

Rescission means cancelling the agreement as if the deal were unwound. Under the Arthur Wishart Act (Franchise Disclosure), 2000, the deadline depends on what went wrong.

For late or deficient disclosure, you can cancel without penalty within 60 days of receiving the disclosure document or material change statement (s. 6(1)). If no disclosure document was ever provided, you can rescind within two years of entering the franchise agreement (s. 6(2)).

What counts as late or deficient

The franchisor must give the disclosure document at least 14 days before you sign the franchise agreement or any related agreement, or pay any consideration. The document must cover items such as background, litigation and bankruptcy history, financial statements, offering costs, draft agreements and current and former franchisees. Information must be accurate, clear and concise.

A material change must also be disclosed before signing or payment. A missing certificate can be serious: the Court of Appeal for Ontario held that a disclosure document missing the signed and dated certificate required by s. 7 of O. Reg. 581/00 is a fatal defect on its own, and the franchisees need not show they could not make an informed decision. Whether your document is deficient depends on the facts, so have a lawyer review it.

What money you can recover

After a valid rescission the franchisor has 60 days to return your money. You can also sue for damages for loss from incomplete information or misrepresentation.

In one Court of Appeal decision, the court upheld rescission under s. 6(2) and an order of $475,909.26 under s. 6(6). That figure reflects that case's facts and is not a guide to what you might receive.

Pitfalls to avoid

• Waiting too long: the 60-day and two-year periods are deadlines, so note the date you received the document.
• Assuming the document was fine because the government approved it: it does not review or approve disclosure documents.
• Continuing to operate or make payments without advice while you decide, since the effect on your position depends on the facts.
• Overlooking other claims: fair dealing requires every party to a franchise agreement to act in good faith, and a breach lets the other party sue.

What to do next

• Write down the date you received the disclosure document and any updates.
• Gather the franchise agreement, related agreements, receipts and emails.
• Compare the disclosure document with what you were told verbally.
• Check whether the document includes a signed and dated certificate.
• See a lawyer promptly, before the deadline passes, to confirm which deadline applies and how to give notice.

Frequently asked questions