Buying a Franchise in Ontario: Responding to a Material Change

Several weeks may pass between receiving information about a franchise and signing an agreement. During that time, the franchise network’s circumstances or the terms of the offer may change. To make an informed decision about joining a franchise network, you need to check that the information you are relying on is still up to date. In Ontario, the requirement to disclose material changes provides a specific safeguard for buyers.

1. Understand what Ontario law requires

The Arthur Wishart Act (Franchise Disclosure), 2000 governs, among other things, pre-contractual disclosure in Ontario. Subject to the exceptions set out in the Act, the franchisor must provide a disclosure document at least 14 days before you sign an agreement relating to the franchise or make a payment.

That obligation does not end with the initial disclosure. If a material change occurs, the franchisor must provide a written statement of material change as soon as practicable after the change and before the relevant signing or payment.

In essence, a material change is a change that could reasonably be expected to have a significant adverse effect on the value or price of the franchise, or on the decision to acquire it. It is therefore more than simply news that a buyer finds interesting.

Do not confuse the two requirements: the initial 14-day period and the obligation to disclose a material change are separate. A statement of material change does not automatically trigger a new statutory 14-day period. Your lawyer should determine whether the documents you have received and the proposed timetable meet the applicable requirements.

2. Identify developments that need checking

Before signing, ask explicitly what has changed since the date of the disclosure document. A general question about how well the network is doing is not enough: look for developments that could alter the practical terms of your investment.

Depending on their scale and context, the following events could warrant further assessment:

• an increase in the investment needed to open the business;
• the loss of a key supplier without a comparable replacement;
• new litigation that could jeopardise the operation of the brand;
• a significant deterioration in the franchisor’s financial position;
• a substantial change to the proposed operating model.

These examples are not a statutory list, and none of these events automatically qualifies as a material change. Ask your lawyer to assess their significance.

A reassuring sales email or a telephone explanation does not necessarily replace the required statement. If a representative tells you about a development, ask for a written description and send it to your advisers before proceeding.

3. Assess the impact on your purchase decision

Your aim is not simply to obtain another document. It is to establish whether, having understood the change, you would still buy the franchise on the same terms.

Work with your accountant to prepare a simple table: original assumption, new information, financial impact, response needed. For example, a mandatory change in equipment could affect the purchase price, delivery times, installation and opening date. Consider these effects together rather than in isolation.

Then ask the franchisor three questions:

• Which parts of the project are affected, directly or indirectly?
• What measures are planned to reduce the impact on the prospective franchisee?
• What documents can substantiate these explanations?

If the development creates uncertainty over your budget or timetable, ask to postpone completion of the purchase. Do not assume, however, that you have a general right to suspend all your commitments: have any commitments you have already made checked, particularly those involving third parties.

4. Keep evidence and understand the remedies available

Keep dated versions of documents, emails, attachments and proof of receipt. Record signing and payment dates too. This timeline may become essential when assessing compliance with legal obligations.

In Ontario, late or non-compliant delivery of the disclosure document or a statement of material change may give rise to a right to rescind the agreement under the conditions set out in the Act, including within 60 days of receiving the disclosure document. If no disclosure document is provided, rescission may be available within two years of entering into the agreement.

Damages may also be available for losses arising from misrepresentation or a failure to meet disclosure obligations. These remedies are not automatic: their availability depends on the facts and the legal requirements. Consult a lawyer promptly rather than sending a notice of rescission on your own.

Key takeaway: just before signing or paying, check what has changed, insist on the necessary written information and have the consequences reassessed. An informed purchase decision needs to remain informed right through to completion.