Have you found yourself in the following situation? You enthusiastically entered into a franchise agreement bringing the next big franchise to your community. However, after signing the agreement, things went south. You feel like the franchisor failed to disclose the risks, costs, and realities of operating the franchise. As a result, your business has struggled to get off the ground, or worse, it is losing money that you simply cannot afford to lose.
If you find yourself in a similar situation, you are not alone. Fortunately, Ontario franchise law provides important protections for franchisees. The Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c.3 (the “Act”) requires all franchisors in Ontario to disclose information about the franchise system to a prospective franchisee so that they can make an informed decision before signing a franchise agreement.
If a franchisor failed to provide adequate disclosure, the Act allows franchisees to terminate a franchise agreement by way of “rescission” for up to 2 years after signing the franchise agreement.
In this blog post series, we explore what to look for in the Franchisor’s disclosure package that may allow for a rescission.
Rescission for Non-Disclosure under Section 6(2) of the Act
Section 6(2) of the Act provides that a franchisee may terminate a franchise agreement no later than 2 years after signing the franchise agreement if the franchisor has never provided the disclosure document.[1]
A disclosure document can be so deficient that it amounts to no disclosure.[2] The Courts have recognized two general ways in which a franchisee can show the disclosure from the franchisor is so deficient that it amounts to no disclosure:[3]:
- “Fatal Flaw”: The disclosure document contains a “fatal flaw”. Given the policy objectives of the Act, the Court does not need to consider whether the deficiency inhibited the franchisees’ ability to make an “informed investment decision”.[4]
- “Informed Decision” Analysis”: The Courts assess whether the alleged deficiencies are serious enough such that they impaired the ability of the franchisee to make an informed investment decision.[5]
Fatal Flaws in Disclosure
In this blog post, we focus on what are the fatal flaws. The Courts have identified four (4) fatal flaws of disclosure that will likely allow a franchisee to rescind a franchise agreement:[6]
- Unsigned disclosure certificates;
- Failure to include a head lease;
- Inadequate or non-compliant financial statements, and
- Piecemeal disclosure.
Fatal Flaw No. 1 – Unsigned Disclosure Certificates
The Act requires every disclosure document to contain a certificate that is signed and dated by the Franchisor’s director(s) confirming the disclosure is correct and comprehensive.[7]
If the disclosure document lacks a signed certificate, then a court will likely find a fatal flaw that warrants a rescission.
Fatal Flaw No. 2 – Failure to Disclose a Head Lease
The second fatal flaw is the failure to include a head lease in the disclosure package. It is not unusual for a franchisor to already have secured a location for the new franchise unit. Consequently, the head lease for that location must be included in the disclosure document.
Fatal Flaw No. 3 – Inadequate or Non-compliant Financial Statements
The third fatal flaw is providing inadequate or non-compliant financial statements. The Franchisor’s financial statement provide an overview of the Franchisor’s financial health which affects the viability of the franchise system.
The Act therefore requires a disclosure document to include the Franchisor’s financial statement prepared in accordance with generally accepted accounting principles.[8]
Fatal Flaw No. 4 – Piecemeal Disclosure
The fourth fatal flaw is when a disclosure document is not delivered in a single package. The Act forbids piecemeal disclosure because it is more likely to lead a prospective franchisee to miss important information, preventing them from making an informed decision. In 1490664 Ontario Ltd. v. Dig this Garden Retailers Ltd., the Court of Appeal for Ontario states “the language of the Act is unambiguous, and it is mandatory” when it pertains to the disclosure being made in the form of one document.[9]
If you believe that you were not provided adequate disclosure from your franchisor, you may have the right to rescind your franchise agreement and recover some or all of your losses. Our experienced franchise lawyers can help you review your disclosure documents and provide you with advice on whether you may have a rescission claim.
[1] Arthur Wishart Act (Franchise Disclosure), 2000, SO 2000, c 3, s 6(2).
[2] EazyFoods Inc et al v. 615241 Ontario Ltd et al, 2026 ONSC 504 at para 19.
[3] EazyFoods Inc et al v. 615241 Ontario Ltd et al, 2026 ONSC 504 at para 19.
[4] 2364562 Ontario Ltd. v. Yogurtworld Enterprises Inc., 2021 ONSC 5112 at para 37.
[5] 2611707 Ontario Inc. v. Freshly Squeezed Franchise, 2022 ONCA 437 at para 10.
[6] 2364562 Ontario Ltd. v. Yogurtworld Enterprises Inc., 2021 ONSC 5112 at para 37.
[7] General, O Reg 581/00, s.7 (The regulation under the Arthur Wishart Act).
[8] General, O Reg 581/00, s. 3.
[9] 1490664 Ontario Ltd. v. Dig this Garden Retailers Ltd., 2005 CanLII 25181 (ON CA)
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