An Existing Franchisee Has Provided Notice To The Franchisor That It Wishes To Extend The Term Of Its Franchise Agreement, Is The Franchisor Required To Deliver A Disclosure Document To This Franchisee?

That depends. Section 5(7)(f) of the Arthur Wishart Act provides an exception to the franchisor's obligation to deliver a disclosure document (14 days prior to a prospective franchisee signing any agreement or paying consideration in relation to renewals/extensions of a franchise agreement) provided that: a) there has been no interruption in the franchisee operating the business; and b) there has been no material change since the franchise agreement or latest renewal/extension was entered into.

Material change is broadly defined in the Arthur Wishart Act to be, "a change in the business, operations, capital or control of the franchisor or franchisor's associate, a change in the franchise system or a prescribed change, that would reasonably be expected to have a significant adverse effect on the value or price of the franchise to be granted or on the decision to acquire the franchise and includes a decision to implement such a change made by the board of directors of the franchisor or franchisor's associate or by senior management of the franchisor or franchisor's associate who believe that confirmation of the decision by the board of directors is probable".

There is an exception to delivering a disclosure document to continuing franchisees when the term of the franchise agreement is being renewed/extended. However, if there is any amendment made, whether to the franchise agreement, the business operations, the franchisor, the system etc., regardless that the franchisor does not perceive the amendment to be a material change, it would be prudent for the franchisor not to rely on this exception and deliver the franchisee a disclosure document in accordance with Arthur Wishart Act. It is not worth the franchisor taking the risk of the franchisee subsequently asserting that a material changed existed and the franchisor failed to deliver to the franchisee a disclosure document in accordance with the Arthur Wishart Act. The Arthur Wishart Act provides prospective franchisees with the right to rescind a franchise agreement, for a period of two years from entering into the franchise agreement, if the franchisor never provided it with a disclosure document.

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