Understand your franchise agreement before you sign

A franchise agreement review examines the legal documents that govern the relationship between the franchisor and franchisee. These commonly include the franchise disclosure document, or FDD, the franchise agreement, personal guarantees, and related lease or sublease arrangements.

The purpose of the review is to explain the terms in practical language and identify financial obligations, operating restrictions, and personal liabilities before the buyer commits to the business. A review can also help an existing franchisee assess an updated agreement at renewal.

The agreement review process

The review may involve the following steps:

1. Confirming disclosure and timing. Generally, where disclosure is required, Ontario requires the FDD to be provided at least 14 days before signing a franchise-related agreement or paying consideration, subject to statutory exceptions. This is a pre-contract disclosure requirement. See section 5 of Ontario’s Arthur Wishart Act (Franchise Disclosure), 2000.
2. Reviewing the documents. The FDD, franchise agreement, guarantees, subleases, and other related documents are examined together to identify obligations and potential risks.
3. Discussing the findings. The lawyer explains material issues, including fees, territory restrictions, default provisions, termination rights, and the practical consequences of the proposed terms.
4. Seeking amendments. Where the franchisor is willing to negotiate, an addendum or other written changes may address issues such as personal guarantee limits or additional time to remedy a default.
5. Preparing for signing. The client considers the identified risks and any agreed changes. Signing and funding can then be coordinated once applicable disclosure requirements and other conditions have been addressed.

How our office can help

We help franchise buyers and existing franchisees understand the agreement they are being asked to sign. Depending on the circumstances, our work may include:

• Explaining fees and costs: Breaking down royalties, advertising fund contributions, transfer fees, and other contractual charges so the client can assess the financial commitments.
• Assessing disclosure compliance: Reviewing the FDD against Ontario’s Arthur Wishart Act, including material information and required financial statements, and advising on potential remedies for missing or deficient disclosure. Rescission rights and other remedies depend on the facts and applicable deadlines.
• Negotiating available protections: Acting on the client’s instructions to seek longer periods to remedy defaults, clearer renewal conditions, or limits on personal guarantees where amendments are available.
• Coordinating lease terms: Comparing the franchise agreement with the commercial lease to identify mismatched terms and obligations, including rental commitments that may continue after franchise rights end.

Who may need a franchise agreement review?

• First-time entrepreneurs buying their first franchise and seeking a clearer understanding of the franchisor-franchisee relationship.
• Experienced business owners investing in a different brand and assessing the specific obligations in that franchisor’s documents.
• Existing franchisees approaching the end of their current term and being asked to sign a new or updated franchise agreement as a condition of renewal.

Our office provides practical advice on the documents, the available scope for negotiation, and the obligations that will shape the franchise relationship.