Since franchisors are in a position to dictate the terms of
franchise agreements, the franchise disclosure document is legally
required in order to provide a prospective franchisee with
sufficient and readily accessible information to assist them to
make informed decisions as to whether to invest in the franchise
system or not.
However, franchise legislation does exempt franchisors in a
limited number of circumstances from having to provide a disclosure
document to a new franchisee, and, recently, an Ontario court
decision helped to clarify the application of one of those
According to Ontario franchise legislation, a franchisor does
not have to disclose a franchisee on the resale of a franchise
between an existing franchisee and a new one where "the grant
of the franchise is not effected by or through the
franchisor". In the Ontario Court of Appeal decision in
2189205 Ontario Inc. v. Springdale Pizza Depot Ltd., the court
clarified and reinforced the meaning of this exemption by pointing
out a number of circumstances (as had occurred between the parties)
which, taken together, supported the conclusion that a resale was
brought about or caused to happen by or through the franchisor:
the franchisor directed the franchisee to the purchaser;
the franchisor negotiated together with the parties to
bring about the sale of the business and assignment of the
the franchisor required the new franchisee to sign documents
which the original franchisee had not been required to sign –
it did not matter that these documents carried little significance
and did not have much bearing on the operation of the
As a result, franchisors who wish to take advantage of this
exemption should take special care, on the resale of a franchise,
to stay as uninvolved in the transaction as possible. It is
permissible to approve or reject the sale without triggering
disclosure obligations, but any more activity than that (including
approving the purchase price) may limit the availability of the
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).