Buying a Franchise in Manitoba: Agreeing Deposit Terms Before You Commit

A brand offers to reserve your place in its franchise network in exchange for a deposit. Before paying, distinguish between three things: what the law allows, what the payment secures and how you can get your money back. Manitoba’s disclosure rules include an exception for certain refundable deposits. However, this does not replace due diligence or a review of the proposed agreement.

1. Understand Manitoba’s exception

In Manitoba, The Franchises Act and the Franchises Regulation govern, among other things, the information a franchisor must provide before a purchase. The disclosure document must be delivered at least 14 days before you sign the franchise agreement or make any payment other than a qualifying refundable deposit.

The province’s official guide states that a franchisor may ask a prospective franchisee for a refundable deposit of up to C$100,000. This is a permitted maximum, not a recommended price, a standard business practice or evidence that the offer is credible.

Do not assume this exception allows any payment labelled a ‘deposit’ to be collected before disclosure. Whether it qualifies depends on its actual terms. A payment described as refundable but subject to deductions or additional commitments warrants legal review before you pay anything.

Ask your lawyer to confirm that the deposit and its accompanying agreement meet the requirements of the applicable exception. Provincial rules are not interchangeable: a practice accepted in Manitoba should not automatically be adopted elsewhere in Canada.

2. Define exactly what the deposit reserves

The payment may be presented as a way to reserve a place in the application process, an opportunity to open a business or a proposed location. These descriptions do not necessarily offer the same benefit. Before paying anything, ask for a precise explanation of what the franchisor undertakes to do in return.

Have the following points clarified in the deposit agreement:

• the legal identity of the company receiving the funds;
• the amount required and the reason for it;
• exactly what is being reserved and for how long;
• the steps the franchisor will take during that period;
• how the deposit will be applied if the purchase goes ahead;
• the procedure if you withdraw your application.

A reservation alone does not guarantee approval of premises, a loan or the final award of a franchise. Also check whether the franchisor can continue considering other applicants for the same opportunity.

What matters is not the claimed urgency, but the practical value of the reservation. If the franchisor cannot explain what you are getting, take time to understand before paying.

3. Check the refund terms

The word ‘refundable’ is not enough to ensure a straightforward refund. The agreement should specify whom to contact, how to submit a request and how soon the franchisor undertakes to return the funds. Distinguish these contractual arrangements from your statutory rights.

Look particularly for references to administration fees, assessment fees, expenses incurred or withdrawal penalties. Also ask whether the deposit automatically becomes a non-refundable initial franchise fee on a particular date or after a stage in the selection process. These provisions need to be reviewed to establish whether they are compatible with the exception being relied on.

Ask a simple question: ‘If I decide not to buy after consulting my advisers, how do I get the whole deposit back?’ A hesitant answer, or one that differs from the proposed wording, is a reason to put payment on hold.

Finally, do not assume the funds will be held in trust or in a separate account. Ask for clarification on how they will be held. An obligation to refund the money and the company’s financial ability to do so are two different matters.

4. Stay in control of the timetable and keep records

Draw up a timeline showing the proposed payment date, receipt of the disclosure document, consultations with professional advisers and any eventual signing. The deposit must not become a shortcut that cuts short your assessment of the purchase or circumvents disclosure requirements.

Keep the agreement, receipt, proof of transfer and correspondence about the refund. Check that the payment recipient matches the entity named in the documents. If you withdraw your application, send your refund request by a method that provides a record of it.

If a refund is refused, consult your lawyer promptly. Manitoba legislation provides remedies relating to failures to disclose and misrepresentations, among other things, but the appropriate remedy depends on the circumstances. A dispute over a deposit does not automatically give you the right to rescind a franchise agreement.

Key takeaway: before paying, have the deposit’s eligibility, purpose and refund terms checked. Reserving an opportunity should never prevent you from walking away from a purchase that is not right for you.