Franchise Disclosure Document in Ontario: What You Must Receive

Before you buy a franchise in Ontario, the franchisor has to put key information in your hands. This is the disclosure document, and it is the main tool you have to judge whether the opportunity is what it claims to be.

This article explains what the Arthur Wishart Act (Franchise Disclosure), 2000 requires the franchisor to give you, how much time you must have, and what a defective document can look like. It is general information and not a substitute for advice on your own documents.

What the franchisor must give you and when

The franchisor must give you the disclosure document at least 14 days before you sign the franchise agreement or any related agreement, or pay any consideration. The clock is tied to the earliest of those events, so a deposit or a signed side agreement can matter as much as the main contract.

The disclosure information must be accurate, clear and concise. The government does not review or approve franchisors or their disclosure documents. Because of that, it is sensible to read the document closely yourself and have your own advisers review it.

What the document must cover

The document must cover the following areas:

• Background on the franchisor.
• Litigation and bankruptcy history.
• Financial statements.
• The costs of the offering.
• Draft agreements.
• Current and former franchisees.

The franchisor must also disclose any material change before you sign or pay. A material change is one that could reasonably be expected to have a significant negative effect on the value or price of the franchise or on your decision to buy.

The document must cover the costs of the offering and include the draft agreements. How specific fees and ongoing charges work depends on your agreement, so it is worth confirming them with a lawyer before you sign.

What a defective disclosure document looks like

A document can be defective because it arrives late, leaves out required content, or is inaccurate or unclear. One defect has been treated as serious enough on its own. A disclosure document missing the signed and dated certificate required by section 7 of O. Reg. 581/00 is a fatal defect, and franchisees do not need to show they could not make an informed decision.

In a decision on that point, the Court of Appeal for Ontario upheld rescission under section 6(2) and an order of $475,909.26 under section 6(6). Every case turns on its own facts, but it shows that a technical gap in the documents can have large consequences for the franchisor.

What you can do if the documents are deficient

If the disclosure document or a material change statement is late or deficient, you can cancel without penalty within 60 days of receiving it. If no disclosure document was ever provided, you can rescind within two years of entering the franchise agreement.

After a valid rescission the franchisor has 60 days to return your money, and you can also sue for damages for loss from incomplete information or misrepresentation. Whether your documents are deficient enough to rescind is a legal judgment, so it is worth having a lawyer review them promptly given the deadlines.

What to do next

• Write down the date and method by which you received the disclosure document, and keep the envelope or email.
• Count 14 days forward and do not sign or pay before then.
• Check the document against the list of required topics and flag anything missing.
• Look for the signed and dated certificate.
• Compare what you were told in meetings with what the document and draft agreement say.
• Get a lawyer to review all the documents before you sign, and an accountant to review the financial statements.

Frequently asked questions