Franchising in Canada: check your renewal rights

Buying a franchise does not guarantee that you can run it indefinitely. Even within a well-established franchise network, your ability to continue trading after the agreement expires depends, among other things, on the contract. Before investing, examine how renewal works: a clearly defined right, a conditional option and a simple invitation to negotiate do not offer the same level of security.

1. Distinguish a right from a mere possibility

First, identify the clause covering the end of the agreement and its extension. Do not rely on marketing language such as ‘renewable agreement’. Ask what that expression means in legal terms.

The agreement may provide an option you can exercise if you meet certain conditions. Alternatively, it may give the franchisor considerable discretion, or simply envisage a new agreement without any firm commitment.

Ask your lawyer to answer four questions:

• Who can initiate renewal, and what procedure must they follow?
• How many renewals are available, and how long does each last?
• Can the franchisor refuse renewal even if the stated conditions have been met?
• Does renewal extend the existing agreement or require a new one?

This last distinction is crucial. The right to continue operating does not necessarily mean the right to keep the same terms. A clause may entitle you to sign the agreement the franchisor uses at that time, with obligations that could differ from those you originally accepted.

2. Turn the conditions into a practical checklist

A renewal option may be of little use if you miss a deadline or fail to meet a condition. Before buying, turn the clause into a schedule and a checklist of supporting documents.

Note the period within which you must give notice, who must receive it and the required delivery method. Also check whether the franchisor must respond within a set period. A discussion with your franchise support manager does not necessarily replace the formal notice required by the agreement.

Next, examine the eligibility criteria. Depending on the agreement, these may include payment of outstanding sums, the absence of contractual breaches, compliance with premises standards or additional training. For each criterion, ask:

• On what date will compliance be assessed?
• Which documents will demonstrate compliance?
• Can a breach that has been remedied still justify refusal?
• Is there a period in which you can remedy any non-compliance?

Be wary of vague wording, such as an obligation to perform ‘to the franchisor’s complete satisfaction’ without explicit criteria. Ask for objectively verifiable conditions and a clear procedure. The aim is not to remove every requirement, but to know in advance how to preserve your right to renew.

3. Examine the costs and terms of the next agreement

Do not limit your checks to whether there is a renewal fee. Ask how it is calculated, when it becomes payable and what happens to any money paid if renewal does not go ahead.

Also identify any expenditure that may be required to continue operating, such as legal fees, training or mandatory upgrades. Where future costs are unknown, seek at least a calculation method or a mechanism for limiting them, rather than a verbal estimate.

If you must sign the agreement then in use across the network, ask for a copy of the current template. It does not guarantee the future terms, but it will help you understand the differences that are already possible. In particular, check whether renewal could change your financial obligations, any guarantees you must provide or your operating rights.

Some clauses may also require you to sign a release or waive claims. Do not assume these provisions are either enforceable or harmless. Their scope must be assessed under the applicable provincial law, particularly where statutory protections cannot be excluded by contract.

4. Understand the provincial legal framework

In Canada, it is important to distinguish statutory protections from the terms of a contractual renewal option. A disclosure obligation does not, by itself, create an automatic right to renewal.

In Ontario, the Arthur Wishart Act (Franchise Disclosure), 2000 governs pre-contractual disclosure, among other matters. Subject to applicable exceptions, the disclosure document must be provided at least 14 days before signing or making a payment. It must include, among other things, the renewal conditions and proposed agreements.

Ontario law also imposes a duty of fair dealing in the performance of the agreement, which includes good faith and compliance with reasonable commercial standards. However, this protection is no substitute for a clearly drafted renewal option. A disclosure exemption may apply on renewal if certain conditions are met: have your circumstances checked rather than assuming that a new disclosure document will always be required.

In Quebec, there is no franchise-specific legislation imposing an equivalent disclosure regime. The general rules of the Civil Code of Québec, particularly those relating to contracts and good faith, apply.

Key takeaway: before buying, obtain a written summary of the notice deadline, conditions, costs and agreement you will need to sign to renew. Have your lawyer check it, then keep it with your schedule of contractual deadlines.