Buying a franchise in Ontario: new unit or resale, and what to check

A franchise gives you a tested system, a known brand and often easier financing. You also give up control, pay ongoing royalties, and need the franchisor's approval for almost everything. Here's how to buy one with your eyes open.

New unit vs. resale

• New unit from the franchisor: you get a fresh lease and new equipment, but you start with no sales history.
• Resale from an existing franchisee: you get real sales numbers and trained staff. You pay for goodwill, and the franchisor must approve you and may charge a transfer fee.

Your disclosure rights (Arthur Wishart Act)

Ontario's franchise law requires the franchisor to give you a disclosure document at least 14 days before you sign any franchise agreement or pay any money. It must include financial statements, the agreements you'll sign, litigation history and other material facts.

• If disclosure is late or materially deficient, you may be able to cancel (rescind) within 60 days of receiving it.
• If disclosure was never given, that window can be up to 2 years.
• Some resales by an existing franchisee are exempt from disclosure. On a resale, you must do your own digging.

Always have a franchise lawyer review the disclosure document before you sign.

What to check before you buy

• Royalty and ad fund percentages, and what you actually get for them
• Term and renewal of the franchise agreement, and whether it lines up with the lease
• Required renovations on resale or renewal. These can cost tens of thousands of dollars
• Territory protection: can they open another unit down the street?
• Supplier rules: forced suppliers and markups
• Head lease vs. sublease: many franchisors hold the lease and sublet it to you
• Talk to current and former franchisees. Their names should be in the disclosure

Financing a franchise

Established brands with a track record are often easier to finance. Banks may have franchise lending programs, and the CSBFP can cover equipment and leaseholds. On a resale, a BDC purchase loan can help with goodwill. Expect to put down roughly 20–30%, and have proof of liquid funds ready, because many franchisors set their own minimums.

For how permitted use, franchise requirements and lease terms fit together, read Commercial lease and franchise deals.

General information, not legal advice. Franchise law is technical, so use a lawyer who practises franchise law.

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