- A franchisor must disclose any material change before you sign or pay anything, and a material change is one that could reasonably be expected to have a significant negative effect on the franchise's value or price, or on your decision to buy.
- If the disclosure document or a material change statement is late or deficient, you can cancel without penalty within 60 days of receiving it, and the franchisor then has 60 days to return your money.
- The government does not review or approve franchisors or their disclosure documents, and the information in them must be accurate, clear and concise.
You have your franchise disclosure document in hand and you are close to signing. Then you hear something new: a key supplier is leaving, a nearby location is opening, or a lawsuit has been started. You wonder whether the franchisor has to tell you, and whether what you were given is now out of date.
Ontario's Arthur Wishart Act (Franchise Disclosure), 2000 deals with exactly this. This article explains what a material change is, when the franchisor must tell you, and what options you may have if the update is late or incomplete. It is general information, not advice on your deal.
What a "material change" means
A material change is a change that could reasonably be expected to have a significant negative effect on the value or price of the franchise, or on the buyer's decision to buy. Notice the two parts. The change can matter because it lowers what the franchise is worth, or because it is the kind of news that a reasonable buyer would want before deciding.
The test asks what could reasonably be expected, looking at the effect on the value or price of the franchise or on a buyer's decision to buy. Whether a particular development meets that test depends on the facts, and a lawyer can help you judge it.
- A change that shrinks the franchise's value or the price a fair buyer would pay could qualify.
- A change that would reasonably affect whether you go ahead could qualify, even if the dollar effect is hard to measure.
- Small or neutral changes, or good news, are less likely to meet the "significant negative effect" wording, though the line is not always obvious.
When the franchisor must tell you
The franchisor must disclose any material change before you sign the agreement or pay any money. This sits on top of the main disclosure rule, which says you must receive the disclosure document at least 14 days before you sign the franchise agreement or any related agreement, or pay any consideration.
In practice, the 14 days is not a one-time check that expires once you have the document. If something material changes after you receive it, the franchisor must still tell you before you sign or pay. Keep asking questions until closing, and keep notes of what you were told and when.
The standard: accurate, clear and concise
Disclosure information must be accurate, clear and concise. A document that is technically complete but confusing or misleading may not meet that standard. The disclosure document is also meant to cover things like background, litigation and bankruptcy history, financial statements, offering costs, draft agreements and current and former franchisees.
One point surprises many buyers: the government does not review or approve franchisors or their disclosure documents. Nobody has checked the document for you. Having it professionally reviewed before you sign is a sensible step, and so is speaking with current and former franchisees listed in it.
If the statement is late or deficient
If the disclosure document or a material change statement is late or deficient, you can cancel the deal without penalty within 60 days of receiving it (section 6(1)). Where no disclosure document was ever provided, a longer period applies: you can rescind within two years of entering the franchise agreement (section 6(2)).
| Your option | What the Act provides |
|---|---|
| Cancel (rescind) | Without penalty, within 60 days of receiving the late or deficient document or statement |
| Refund | The franchisor has 60 days after a valid rescission to return your money |
| Sue for damages | You can claim for loss from incomplete information or misrepresentation |
| Good faith | Every party to a franchise agreement must act in good faith, and a breach lets the other party sue |
A missing piece can be serious on its own. In one Court of Appeal for Ontario decision, a disclosure document without the signed and dated certificate required by section 7 of O. Reg. 581/00 was a fatal defect, and the franchisees did not need to show they were unable to make an informed decision. Whether a defect in your situation is that serious depends on the facts.
What to do next
If you hear of a new development before you sign or pay, slow down. Do not sign or send money until you understand it. Section numbers mentioned here are worth checking against the current text on Ontario e-Laws, since your lawyer will rely on the current wording.
- Write down what you heard, who told you and the date.
- Ask the franchisor in writing whether there has been a material change since the disclosure document, and request any material change statement.
- Note the date you received each document, because the 60-day period runs from receipt.
- Compare the update with the disclosure document and look for gaps or unclear wording.
- Have a franchise lawyer review the documents before you sign or pay anything.
- Do not sign the agreement or any related agreement, or pay any money, until you have what you need.
Frequently asked questions
Does the franchisor have to tell me about a change after I receive the disclosure document?
Yes. The franchisor must disclose any material change before you sign or pay. That is separate from the requirement to give you the disclosure document at least 14 days before you sign or pay.
How long do I have to cancel if the material change statement is late or deficient?
You can cancel without penalty within 60 days of receiving the disclosure document or material change statement if it is late or deficient. After a valid rescission, the franchisor has 60 days to return your money.
Can I also claim damages?
You can sue for damages for loss caused by incomplete information or misrepresentation. Every party to a franchise agreement must also act in good faith, and a breach lets the other party sue.
Has the government checked my disclosure document?
No. The government does not review or approve franchisors or their disclosure documents. The information must be accurate, clear and concise. How that applies to your document depends on your situation, so it is worth confirming with a lawyer.
Sources
- Ontario.ca – Franchising information for buyers and owners — ontario.ca
- Court of Appeal for Ontario, 2483038 Ontario Inc. v. 2082100 Ontario Inc., 2022 ONCA 453 — ontariocourts.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
This is a business purchase or sale question
Start a file online — flat, published fees, reviewed by a licensed lawyer before a dollar is owed.