Franchising in Manitoba: setting clear terms for a reservation deposit

Reserving a franchise may seem like less of a commitment than buying one. Yet a payment accompanied by a form can tie up your money and create obligations before you have completed your due diligence. If you are considering joining a franchise network in Manitoba, make a clear distinction between a refundable deposit, reserving a business opportunity and a binding commitment. Here is how to assess this stage without rushing your decision.

1. Understand the refundable deposit exception

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

The Manitoba government's guide explains that a franchisor may ask a prospective franchisee for a refundable deposit of up to C$100,000. This is a regulatory ceiling, not a recommended fee or an indication of what a reservation is worth.

The exception does not mean that every payment labelled a ‘deposit’ falls outside the disclosure waiting period. The true nature of the payment and the accompanying documents matter. Ask your lawyer to check that the proposed payment and agreement meet the applicable legal conditions.

Do not automatically apply this rule to a franchise elsewhere in Canada: you must check the exceptions and requirements in the relevant province. There is no general federal law specifically governing franchise sales.

2. Define what the reservation gives you

Before paying anything, ask exactly what the franchisor is committing to reserve. Is it a specific site, an opportunity to open in a particular area, or simply your place in its selection process?

The document should answer these questions:

• Which business opportunity does the reservation cover?
• How long will the franchisor keep it available?
• Can it continue discussions with other candidates?
• What steps must you complete during this period?
• What happens if no site is ultimately approved?

A reservation does not necessarily guarantee that you will be awarded the franchise. The franchisor may still need to approve your application, your funding or the proposed premises. Identify these conditions so that you do not confuse temporary priority with a final award.

Nor should you treat a reservation's expiry date as sufficient reason to sign. If your due diligence is incomplete, request a written extension or explore whether you can recover the deposit. A commercial timetable does not override legal disclosure requirements.

3. Examine the refund process

The word ‘refundable’ calls for a careful reading of the entire agreement. Ask how the refund will be handled if you decide not to proceed, your application is rejected or the parties cannot agree on the final contracts.

Get written confirmation of:

• who should receive the refund request;
• the accepted method for submitting it;
• the deadline for returning the funds;
• any potential deductions or charges;
• when the deposit would be credited towards the franchise purchase price.

Any proposed deduction should be reviewed by a lawyer. Administrative charges or automatic conversion into a non-refundable payment may raise significant questions about whether the arrangement meets the conditions of the exception. Do not assume that such a clause is valid or that its wording alone makes it compliant.

Also ask who will receive the money and what type of account it will be held in. A deposit paid directly to the franchisor does not necessarily offer the same practical protections as money held in trust. Do not assume that there is a requirement to hold the funds in trust simply because the payment is refundable.

Keep the signed agreement, proof of payment and refund instructions. Having the right to claim your money back and being able to recover it easily are two different matters.

4. Keep the reservation separate from the purchase decision

Draw up a timeline with your lawyer: the deposit date, receipt of the disclosure document, contract review, reservation deadline and proposed date for making a binding commitment. Have the statutory waiting period calculated and confirmed rather than relying on an invitation to sign.

Use the reservation period to assess the opportunity, not to make the purchase inevitable. Continue your financial and contractual due diligence before authorising the deposit to be applied towards a final payment. Review any accompanying forms too: an application form may do more than simply collect information.

If you wish to withdraw, submit a written request using the procedure you have checked and keep proof of receipt. If the refund is refused or delayed, consult your lawyer promptly to establish the appropriate remedies, keeping the distinction between a contractual refund and statutory rescission of the contract clear.

Key takeaway: before reserving, have three points confirmed: what is actually being reserved, how your money will be returned and what commitments you are making now.