1201059 Ontario Inc. v Pizza Pizza Ltd., 2013 ONSC
5200, is a recent decision out of Ontario that addresses the
disclosure requirements of a franchisor with respect to the
obligation of a franchisee to incur substantial costs to renovate a
store on renewal of the franchise agreement.
The franchisee claimed that the franchisor did not meet its
obligations under the Arthur Wishart Act (Franchise
Disclosure), 2000 (the "Act") by failing to disclose
details of the franchisor's renovation plans and costs with
respect to the Pizza Pizza location operated by the franchisee. The
court held that the franchisor did not have an obligation to
provide a fresh disclosure document prior to the execution of a
franchise renewal agreement because the proposed renovations to the
Plaintiff's restaurant did not constitute a "material
change" since the date that the original franchise agreement
was entered into by the parties.
Section 5(7)(f) of the Act states that the franchisor's
obligation to provide written disclosure does not apply to the
renewal of a franchise agreement where there has been no
interruption in the operation of the business operated by the
franchisee under the franchise agreement and there has been no
material change since the franchise agreement was entered into.
There was no interruption to the operation of the plaintiff's
Under section 12 of the Act, the franchisor has the burden of
proving the exemption. The Court held that such exemptions are to
be narrowly construed. The test for materiality is an objective
test and requires determination of whether an action or change by
the franchisor would affect a reasonable investor's decision to
acquire the franchise. In its decision, the Court determined that
there were no material changes in the wording in the renewal
agreement that were fundamental to the franchisee's business
operations. In addition, the Court determined that the franchisee
had been fully informed, before signing the original franchise
agreement in 1996, that all Pizza Pizza locations, including the
one the franchisee would be purchasing, would have to undergo
renovations to transform them into sit-down restaurants and that
the franchisee would be responsible for the renovation costs. As a
result, the Court determined that even if the renovations had been
a material change, the change was not one that took place after the
date of the initial franchise agreement.
In addition, the Court determined that the franchisor acted in
good faith throughout its dealings with the franchisee, giving the
franchisee multiple options and alternatives when the franchisee
was dissatisfied with the renovation requirement.
This decision suggests that where there are no material changes
from the original franchise agreement, a franchisor is not
obligated to provide disclosure upon granting a franchisee the
right to renew. In this decision, the franchisor was able to
successfully rely on an exemption found in section 5(7) of the Act.
However, franchisors should be cautious when seeking to rely on
disclosure exemptions. When in doubt, they ought to err on the side
of caution and provide a franchise disclosure document
notwithstanding the possible availability of an exemption from
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