What to Check in the Franchise Agreement Before Buying a Franchised Business in Ontario

Buying a franchised location involves two related documents: the purchase agreement between you and the current owner, and the franchise agreement between the owner — soon to be you — and the franchisor. The second document often does more to shape your future than the first: it controls the territory you can operate in, how long you can operate there, and what happens if you fall out of compliance with brand standards.

This article walks through the specific franchise agreement clauses a buyer should review before committing to purchase a franchised business in Ontario.

Why the Franchise Agreement Needs Its Own Review

A purchase agreement transfers the business from seller to buyer. It does not, by itself, transfer the franchise relationship — that runs on the terms of the existing franchise agreement, or a new one the franchisor requires the buyer to sign. Reviewing the franchise agreement separately from the purchase agreement is essential because its terms bind the buyer for years after closing, often regardless of what the purchase agreement says.

Key Clauses to Review

Remaining Term and Renewal Rights

Confirm how much time is left on the current franchise agreement, whether there's a renewal right, and what conditions — retraining, upgraded fixtures, updated fees — apply to renewing.

Territory

Check the geographic or customer scope the franchise agreement grants, and whether that territory is exclusive or the franchisor reserves the right to open or license additional locations nearby.

Transfer and Assignment Rights

This clause governs the very transaction you're in. It typically sets out the franchisor's approval rights over an incoming buyer, any transfer fee, retraining requirements, and whether the buyer needs to sign a new-form franchise agreement rather than simply stepping into the existing one.

Default and Compliance History

Ask for a summary of the outlet's compliance history — audit results, notices of default, or disputes with the franchisor. A location with an unresolved default can affect whether the franchisor will approve the transfer at all.

Fees and Ongoing Obligations

Royalty rates, marketing fund contributions, required suppliers, and renovation or "refresh" obligations are all typically set by the franchise agreement, not negotiable between buyer and seller.

Non-Compete and Territorial Restrictions

Franchise agreements commonly restrict a franchisee from operating a competing business during the term and for a period after it ends, and may include a radius clause protecting neighbouring franchise territories. These are separate from — and generally treated differently than — employee non-compete restrictions under Ontario employment law.

How This Differs From Buying an Independent Business

Where the Arthur Wishart Act Comes In

Franchise transfers sit alongside the Arthur Wishart Act (Franchise Disclosure), 2000, which requires a franchisor to give prospective franchisees a disclosure document before they sign an agreement or make a payment, and imposes a statutory duty of fair dealing between franchisor and franchisee. Whether a particular resale requires fresh disclosure depends on the transaction's specific facts and the Act's regulations — this should be confirmed for your transaction rather than assumed.

A Practical Review Process

1. Request the current franchise agreement and any amendments — not just a generic template from the franchisor's website.
2. Ask the franchisor directly about the transfer process, approval criteria, and any outstanding compliance issues tied to the location.
3. Compare renewal terms against how long you plan to hold and operate the business.
4. Have your lawyer flag any non-compete, territory, or default clauses that could affect your plans before you finalize the purchase price.
5. Confirm disclosure obligations with your lawyer early, since timing requirements can affect your closing schedule.

Frequently asked questions