The decision to purchase a business is a complicated one. Ontario business people who are considering buying an existing franchise should be aware of franchise law before making this decision. They should also ask four key questions before deciding whether the sale is right for them.
In a recent case, Hepburn v AlarmForce, 2017 ONSC 6012 ("Hepburn"), the Ontario Superior Court of Justice considered the circumstances in which a "material change" may trigger the disclosure obligation in a renewal of, or extension to, an existing franchise agreement. The decision also addressed the evidentiary considerations engaged in the context of a motion for summary judgment.
Purchasing a franchise is a major business decision. The Arthur Wishart Act (Franchise Disclosure) ("the AWA") recognizes this fact and seeks to assist prospective franchisees by imposing strict financial and other disclosure requirements on franchisors. The legislation is aimed at ensuring that franchisees have sufficient information to decide whether or not they wish to enter into a franchise purchase transaction. If a franchisor fails to abide by the disclosure requirements contained in the AWA, then the franchisee may elect to "rescind" the franchise agreement altogether. Depending on the circumstances, the franchisee may also be entitled to damages.
Building a business from nothing can be a time-consuming process without guaranteed results. Many Ontario entrepreneurs start with a franchise of an already successful enterprise, hoping to skip the initial difficult years. However, purchasing a franchise comes at a price. In return for the franchisor's expertise, the franchisee (the person buying the franchise) typically pays a substantial price.