Franchising in Canada: managing changes before signing

Your business is ready to welcome its first franchisees, but a key condition changes during discussions: a piece of equipment becomes mandatory, a legal dispute arises or a key team member leaves. As you build your franchise network, handling these events should not be left solely to the founder. Here is how to manage them between providing information to a prospective franchisee and signing the agreement.

1. Define which events need to be reported

The disclosure document is not a snapshot you can simply forget once it has been issued. For a business starting to franchise, adjustments are frequent. Some are part of day-to-day management; others may materially affect a prospective franchisee’s investment decision.

Create a register of potential changes covering, in particular:

• equipment, fit-out work or digital tools that have become mandatory;
• financial difficulties affecting the franchisor or an associated person;
• legal disputes and issues affecting rights to the brand;
• significant changes to the business concept or contractual terms;
• the actual ability to deliver the promised training and opening support.

This list is a tool for spotting changes, not for automatically determining their legal status. A small increase in an expense does not necessarily carry the same weight as the loss of a tool essential to running the business.

For each event, record when it was discovered, the known facts, the available documents and the prospective franchisees affected. Appoint someone to bring this information together. In a small team, this may be the business owner, but the responsibility must be explicitly assigned.

2. Have the change assessed under the relevant province’s rules

In Canada, franchise-specific regulation is a provincial matter. You should therefore not apply a nationwide procedure without checking the rules where the proposed franchise will operate.

In Ontario, the Arthur Wishart Act (Franchise Disclosure), 2000 requires, subject to applicable exceptions, that the disclosure document be provided at least 14 days before a franchise-related agreement is signed or any consideration is paid. It also requires a written statement of any material change to be provided as soon as practicable after the change occurs and before the signing or payment covered by the Act.

A material change includes, among other things, a change in the business, operations, capital or control of the franchisor, an associated person or the franchise system that could have a significant adverse effect on the value, price or decision to acquire the franchise. A purely commercial judgement such as ‘this should not worry the prospective franchisee’ is therefore not enough.

Other provinces with franchise legislation have their own statutes and requirements. Ask a legal adviser to confirm the applicable requirements, particularly where a statement of material change is insufficient and a corrected or updated disclosure document may be needed.

Quebec has no specific franchise disclosure legislation. The Civil Code of Québec, particularly its rules on good faith, consent and contractual obligations, still applies. The absence of a statutory disclosure form does not justify withholding information that is crucial to the decision.

3. Put a check in place before any commitment

Introduce a checkpoint before any agreement is signed or payment accepted in connection with a new franchise. The person responsible for franchise development should not be able to confirm on their own that everything is ready to proceed.

The check can take the form of a short checklist with four questions:

1. Has anything new happened since the information was provided?
2. Have those responsible for operations, finance and franchise development been consulted?
3. Has the legal adviser determined which documents and time periods are required?
4. Has the correct version been provided to the prospective franchisee using a permitted delivery method?

If there is serious doubt, pause signing and the acceptance of payments until clearance has been given. Do not assume that a deposit described as refundable automatically falls outside the rules: any potential exceptions must be checked.

A statement of material change does not necessarily, by itself, trigger a fresh, standard 14-day waiting period. Equally, it does not automatically remedy an incomplete original disclosure document. The appropriate course depends on the facts and the applicable law.

4. Explain, document and update

Suppose an additional piece of equipment becomes mandatory after the disclosure package has been provided to a prospective franchisee. Gather the facts: the reason for the change, the known cost, the timetable, the impact on the fit-out and the operational implications. Clearly distinguish confirmed amounts from estimates.

Have the required communication prepared, then give the prospective franchisee an opportunity to discuss it with their own advisers. A reassuring phone call is no substitute for a legally required written document. An acknowledgement of receipt proves delivery; it is not a blanket waiver of the prospective franchisee’s rights.

Keep the versions sent, proof of delivery, dates and a record of the decisions made. Then update the disclosure packages for future prospective franchisees and any affected operational documents. This discipline helps prevent your franchise network from growing on the basis of contradictory information.

Key takeaway: before any commitment, check what has changed, have the implications assessed and document the communication. A brief, planned pause is better than signing on the basis of outdated information.