Franchising in Canada: planning for mandatory refurbishments

Buying a franchise means joining a network whose branding and operating methods evolve. Premises that meet the standards today may need new décor, equipment or a different layout tomorrow. Before committing, check the modernisation requirements: they can bring substantial costs, temporary closure and funding needs that the purchase price does not reveal.

1. Identify all rights to require changes

Do not look only for a clause headed ‘refurbishment’. Obligations may be spread across the franchise agreement, its schedules, fit-out standards and the operations manual. Some provisions allow the franchisor to change its standards during the term of the agreement.

Ask your lawyer to distinguish between three categories: routine maintenance, replacement of equipment that is no longer usable, and compulsory modernisation to reflect new branding. A promise of ‘premises ready to trade’ does not necessarily mean that no alterations will be required soon.

Get written clarification of:

• who can require the work and on what grounds;
• whether changes also cover digital tools and equipment;
• the notice period and deadline for completion;
• the consequences of delay or refusal;
• any spending cap or exemptions.

The issue is not just the quoted cost: it is the scope of the contractual power to make you incur expenditure.

2. Check the timetable for the particular premises

A recent refurbishment does not guarantee a long period without further work. It may have preceded the adoption of a new concept or covered only some of the brand’s requirements.

For an existing outlet, obtain the date and details of the most recent work, any available invoices and compliance reports. Ask the franchisor for written confirmation of any outstanding work requirements, as well as modernisation plans already decided on or announced. Do not simply rely on the seller’s assurance that ‘everything is up to date’.

For a new opening, check which version of the concept you must build. If a new design is being developed, ask whether your outlet will have a period after opening during which no compulsory modernisation will be required.

Then compare the proposed timetable with the committed term of your agreement. Work required shortly before it expires could leave little time to recoup your investment. Do not assume that an extension will be granted.

3. Calculate the full cost, not just the building work

Have an independent budget prepared using a sufficiently detailed specification. The figure supplied by the franchisor can be a starting point, but it is no substitute for quotations tailored to the building and local requirements.

Your budget should separately identify:

• drawings, professional fees and permits;
• demolition, construction and installation;
• equipment, furniture and delivery;
• electrical, mechanical or accessibility modifications;
• storage and expenses during closure;
• reopening costs and a contingency allowance.

With your accountant, also assess the margin lost while trading is interrupted, rather than treating all lost turnover as a cost. Check which expenses and franchise fees would remain payable.

Provide the lender with a schedule of funding requirements and a scenario allowing for delays. Securing finance for the purchase does not guarantee funding for later modernisation. Ask which expenses would be eligible and what supporting documents would be needed to release the funds.

4. Link the work to statutory disclosure obligations

In Canada, franchise-specific rules are set at provincial level. In Ontario, the Arthur Wishart Act (Franchise Disclosure), 2000 generally requires, subject to applicable exemptions, a disclosure document to be provided at least 14 days before a prospective franchisee signs an agreement relating to the franchise or makes a payment connected with it.

A known refurbishment programme may be a material fact requiring disclosure if it could significantly affect the franchise’s value or the decision to buy. A material change arising after disclosure but before you commit may also require a separate statement. Have an independent lawyer assess your circumstances.

Quebec has no franchise-specific disclosure legislation. The Civil Code of Québec applies, including its rules on good faith and contractual obligations. The absence of a legally standardised disclosure document therefore does not remove the need to scrutinise the information provided.

5. Secure protections you can rely on

Depending on your negotiating position, propose a period without major modernisation, a minimum notice period, phased work or a clearly defined spending cap. Specify any exceptions, particularly work needed for safety: a protection that is too vague may be difficult to enforce.

Any concession should be recorded in a signed contractual document, with a clear rule establishing which document takes precedence if it conflicts with the operations manual.

Key takeaway: before buying, obtain a written statement of planned refurbishments, an independent budget and a timetable compatible with your agreement and funding.