In July, Ontario's government amended its franchise and general regulations to add clarity and flexibility to the areas affected. These changes came into force on the first of September, and there are some that may directly affect you as a prospective franchisee.
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Franchisors can now take deposits
Unlike some other Canadian provinces, the franchise laws in Ontario did not allow franchisors to take deposits from franchisees before the "cooling-off" period passed. This time frame is 14 days from the delivery of the franchise disclosure document to a potential franchisee.
Now, with the amendment, franchisors can take deposits from potential franchisees before the cooling-off period ends. However, the deposit cannot be more than 20 percent of the initial franchise fee--the laws limit the total deposit to $100,000--and it must be refundable. The franchisor is also not allowed to bind a possible franchisee to sign a franchise agreement via the taking of a deposit.
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Franchisors can have franchisees sign certain agreements
Currently, a franchisor in Ontario can't ask a potential franchisee to sign any agreement related to the franchise--including location reservation or confidentiality agreements--before the the cooling-off period ends.
Under the amendment, there are some situations in which this rule will not apply. Franchisors can now have franchisees sign agreements that only require prospective franchisees to keep provided information confidential, prevent them from using franchisor-provided materials or designate a spot for their potential franchise before the cooling-off period ends.
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There are now guidelines for disclosure exemptions
Under Ontario's franchise laws, franchisors are exempt from disclosure obligations if the franchisee will make a small total yearly investment--under $5,000--or a large one over $5 million dollars.
The amendment changes the method used to calculate these investment amounts and their thresholds. The small investment maximum for the exemption is now $15,000 or less, and the large investment cap has been reduced to $3 million dollars.
In addition, this amendment also expands the accounting standards for the preparation of financial statements to be used in a franchise disclosure document. This change may allow international franchisors to use their home financial statements in their disclosures, provided those statements meet the new standards, without having to also provide reconciliation statements.
As franchise laws change, so does your experience as a prospective franchisee. Fully review any potential changes in provincial franchise law before you sign any franchise agreement to avoid an unwelcome surprise down the road.
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