Ontario franchisors face a legal reality that many discover too late: the Arthur Wishart Act (Franchise Disclosure), 2000 (AWA) does not end its demands after you hand over the disclosure package. The Act governs what you disclose before the sale, what you must do when your business changes mid-process, how you conduct yourself during the entire franchise relationship, and what a franchisee can recover if any of it goes wrong. If you are a franchisor in Ontario, or a U.S. brand entering the Canadian market, this is what the AWA actually requires of you on an ongoing basis.
By reading this guide, you will learn:
- Which sections of the AWA carry the most direct risk for franchisors and what each one requires
- What your ongoing FDD obligations are after the first franchise sale
- When a Statement of Material Change is legally required and what happens if you miss it
- What the 2020 AWA amendments changed and the precise conditions attached to each new permission
- What the duty of fair dealing requires of you throughout the entire franchise relationship
- How serious rescission exposure is and what triggers the 60-day and 2-year windows
- Whether directors and officers can be held personally liable under the AWA
- How Cloudhaus Law supports franchisors on AWA compliance from annual FDD updates to multi-provincial disclosure
Arthur Wishart Act: Key Sections Franchisors Must Know
Before breaking down each obligation, here is a reference map of the AWA sections that affect franchisors most directly.
| AWA / Regulation | What It Governs |
|---|---|
| Section 3 | Duty of fair dealing good faith and reasonable commercial standards |
| Section 4 | Franchisee right of association no interference, no retaliation |
| Section 5 | Franchise Disclosure Document obligations 14-day rule, material facts |
| Section 5(1.1) | Confidentiality and location reservation exemptions (2020) |
| Section 5(7) | Disclosure exemptions director/officer, fractional franchise, $3M threshold |
| Section 6(1) | 60-day rescission right deficient or late FDD |
| Section 6(2) | 2-year rescission right no FDD delivered |
| Section 6(6) | Rescission remedies what franchisors must repay |
| Section 7 | Damages for misrepresentation |
| Section 8 | Joint and several liability includes franchisor’s associates |
| Section 11 | Franchisee AWA rights cannot be waived |
| O. Reg. 581/00, s. 7.1 | Deposit caps and Statement of Material Change certificate rules |
What Are a Franchisor’s Ongoing FDD Obligations Under the AWA?
Your obligation to maintain a current, accurate Franchise Disclosure Document (FDD) does not stop after the first sale. Every prospective franchisee must receive a compliant FDD at least 14 calendar days before signing any agreement or making any payment connected to the franchise. That 14-day cooling period is fixed neither party can shorten it, and delivering an FDD early does not cure one that is incomplete.
Annual Update Requirement and the 180-Day Rule
Ontario law requires franchisors to update their FDD at least once per year. Financial statements in the FDD must cover the most recently completed fiscal year and must have been prepared within 180 days of the fiscal year end at the time you deliver the document. If your fiscal year ended in December and you are disclosing in October without updated financials, your FDD is already non-compliant and every franchisee who received that document has a potential claim.
Financial Statements and Opening Balance Sheets
The FDD must include audited or reviewed financial statements prepared under GAAP or IFRS (IFRS became permitted after the 2020 amendments). For franchisors that have not yet completed a full fiscal year, an opening balance sheet is required in place of annual statements. Many new franchise systems skip this step because they assume no financial history means no obligation that assumption is wrong and creates immediate rescission exposure.
When Must a Franchisor Issue a Statement of Material Change?
A Statement of Material Change is required whenever a material change happens after you deliver the FDD but before the franchisee signs the franchise agreement. You must deliver it as soon as practicable, and it must include a signed certificate from at least two of the franchisor’s officers or directors (per O. Reg. 581/00, s. 7.1). An uncertified Statement is not compliant.
A material change is any development that a reasonable franchisee would consider important to their decision to invest. Common triggers include:
- New or threatened litigation against the franchisor or its associates
- A change to fees, territory, or deal structure
- Loss of a key supplier or licensing agreement
- A change in a key officer or director’s background or status
- Discovery that the proposed location requires a renovation not previously disclosed
A situation we see often: A franchisee in the GTA receives their FDD and is in the 14-day period. The franchisor then receives notice of a claim from existing franchisees for misrepresentation. That litigation must go into a Statement of Material Change before the prospective franchisee signs anything. Waiting until after signing does not preserve compliance it triggers the franchisee’s right to rescind.
What Did the 2020 AWA Amendments Change for Franchisors?
Effective September 1, 2020, Ontario amended the AWA and O. Reg. 581/00 to give franchisors more flexibility at the pre-sale stage but with strict conditions attached to each new permission.
| Area | Before Sept. 1, 2020 | After Sept. 1, 2020 |
|---|---|---|
| Deposits | Not permitted before end of 14-day period | Permitted max 20% of franchise fee, cap of $100,000, must be fully refundable |
| Confidentiality Agreements | Could not be signed before FDD delivery | Can be signed before FDD limited terms only; cannot block disclosure to other franchisees or their advisors |
| Location Reservation Agreements | Could not be signed before FDD delivery | Carved out can be signed pre-FDD |
| Director/Officer Exemption | Applied to current directors/officers only | Extended to those in role for 6+ months, or who left within 4 months; applies to corporations they control |
| Fractional Franchise Exemption | Threshold unclear | Clarified: franchise revenue must represent less than 20% of the pre-existing business’s first-year total revenues |
| Sophisticated Purchaser Exemption | Applied to investments over $5,000,000 | Lowered to total initial investment over $3,000,000; calculation method clarified |
Each of these changes comes with precise conditions. A deposit that is not fully refundable at any point without deduction, or a confidentiality agreement with terms that prevent a prospective franchisee from speaking with other franchisees, does not qualify for the exemption. In those cases, the AWA’s full pre-disclosure prohibition applies and accepting money or having the franchisee sign anything before delivering the FDD triggers non-compliance.
What Does the Duty of Fair Dealing Require of Franchisors?
Section 3 of the AWA requires franchisors to carry out all obligations and exercise all rights under the franchise agreement in good faith and in accordance with reasonable commercial standards. This obligation applies for the entire term of the franchise relationship not just at signing.
In Fairview Donut Inc v The TDL Group Corp 2012 OJ No. 834, the Ontario Superior Court examined whether a franchisor’s pricing decisions specifically retaining rebates and discounts generated through franchisee purchasing could breach the duty of fair dealing. The court found that where the franchisor’s conduct conflicts with the reasonable expectations established by the franchise agreement and the franchise system’s structure, Section 3 liability can follow.
In practice, the duty of fair dealing limits how a franchisor can:
- Exercise discretion in approving or refusing transfers or renewals
- Change supply pricing, marketing contributions, or operational standards
- Apply standards selectively or as a pressure mechanism
- Respond to franchisee complaints or association activity
A commercially reasonable business decision that disadvantages a franchisee does not automatically breach Section 3. What the AWA prohibits is acting in a way that defeats the reasonable expectations the franchisee had when entering the relationship or that causes significant harm without a commercially defensible justification.
What Is the Risk of Rescission and How Serious Is It?
Rescission is the most serious consequence of AWA non-compliance. It allows a franchisee to reverse the entire transaction and recover their investment from the franchisor.
Section 6(1) 60-day window: If the franchisor delivers the FDD late or if the FDD is missing a required element, the franchisee can rescind within 60 days of receiving disclosure.
Section 6(2) 2-year window: If no FDD is delivered, or if the FDD is so deficient that it effectively amounts to no disclosure, the franchisee can rescind within 2 years of signing the franchise agreement.
The Ontario Court of Appeal set the test for “effectively no disclosure” in Raibex Canada Ltd v ASWR Franchising Corp 2018 ONCA 62: whether the deficiency in the FDD deprived the franchisee of the opportunity to make an informed investment decision. This is an objective test the franchisee does not need to show they were actually confused, only that the deficiency was serious enough that a reasonable person in their position could not make an informed decision.
Courts have found the following to be material deficiencies: incomplete financial statements, failure to disclose that the proposed location would be the system’s first non-mall site, and failure to include an executed agreement to lease (confirmed in 2611707 Ontario Inc v Freshly Squeezed Franchise Juice Corporation 2021 ONSC 2323).
Section 6(6) Rescission remedies: Once a franchisee serves a valid Notice of Rescission, the franchisor has 60 days to refund all money paid, buy back all inventory and equipment purchased from the franchisor at cost, and compensate for all losses incurred in acquiring and operating the franchise.
Section 8 makes the franchisor and every “franchisor’s associate” that materially participated in the sale jointly and severally liable meaning a master franchisor, parent company, or development entity can be held fully responsible alongside the direct franchisor.
Can Franchisor Directors or Officers Be Personally Liable?
Yes and this is one of the most overlooked risks in Ontario franchise law. Every FDD must include a certificate signed by at least two of the franchisor’s officers or directors certifying that the document is accurate and contains every required material fact. Courts have found directors personally liable under Section 7 of the AWA for misrepresentations made in a deficient FDD they signed.
If you are a director signing an FDD certificate, you are not a passive witness to the document you are personally warranting its accuracy. A certificate signed in connection with a stale, incomplete, or misleading FDD creates personal exposure that does not disappear when the corporate entity is named as the defendant.
Why Work With Cloudhaus Law on AWA Compliance?
70+ Franchise Locations Opened Across Canada
Irbaz Wahab has personally helped launch over 70 franchise locations across the GTA, including U.S. brands entering Canada for the first time. AWA compliance advice here comes from real transactions, not textbooks.
Dual-Licensed in Canada and the U.S.
When a U.S. franchisor needs their American FDD adapted for Ontario disclosure requirements, we handle it in-house. No referrals, no delays.
Deep Knowledge of Federal and Provincial Law
From Ontario’s AWA to Alberta, BC, and Manitoba franchise legislation, we ensure your FDD, Statement of Material Change, and exemption analysis are compliant at every location, not just head office.
Proactive, Not Reactive
We identify rescission exposure and disclosure gaps before a franchisee does. Annual FDD updates, material change monitoring, and exemption reviews are built into how we work.
Fixed-Fee Pricing
No hourly billing. You know your legal cost before work begins, with subscription plans starting at $1,499/month for qualifying clients.
Available Anywhere in Ontario by Phone or Video
No in-person meetings required. Fast turnaround, secure document handling, and direct access to a franchise lawyer at every stage of your compliance program.
Book a free consultation (647) 965-0516 | irbazwahab@cloudhauslaw.com
Frequently Asked Questions
What are a franchisor’s ongoing obligations under the Arthur Wishart Act?
You must deliver a compliant FDD at least 14 days before signing or payment, update the FDD at least annually, and issue a Statement of Material Change whenever a material change arises after FDD delivery but before the franchise agreement is signed.
When is a Statement of Material Change required?
Whenever a material development occurs after you deliver the FDD but before the franchisee signs including new litigation, deal structure changes, lease changes, or loss of a key supplier.
What financial statements must be in a franchise disclosure document?
Audited or reviewed statements under GAAP or IFRS, for the most recently completed fiscal year, prepared within 180 days of the fiscal year end. New franchisors without a completed fiscal year must include an opening balance sheet.
What triggers rescission rights under the AWA?
A late or deficient FDD triggers a 60-day right under Section 6(1). A materially deficient FDD one that fails the Raibex informed investment decision test or no FDD at all triggers a 2-year right under Section 6(2).
What does the duty of fair dealing require day-to-day?
Section 3 requires good faith and reasonable commercial standards across all franchisor conduct throughout the relationship pricing decisions, approvals, renewals, enforcement, and supply terms are all covered.
Conclusion
If your FDD has not been updated in the last 12 months, or if you are not certain whether a recent change in your system requires a Statement of Material Change, contact Cloudhaus Law for a direct conversation with a franchise lawyer who has handled this work across 70+ locations in Ontario.
(647) 965-0516 | irbazwahab@cloudhauslaw.com
This article provides general information only and does not constitute legal advice. Contact Cloudhaus Law Professional Corporation for advice specific to your franchise system.
Irbaz Wahab | Cloudhaus Law Professional Corporation Suite 700 – 225 East Beaver Creek Rd, Richmond Hill, Ontario L4B 3P4
