Sometimes a Disclosure Document is not a Disclosure Document

Franchisors might believe that once they have provided a disclosure document to a franchisee, then the franchise agreement is only capable of being rescinded within the next 60 days afterwards due to a failure to comply with the disclosure requirements imposed by theArthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, C. 3 (the “Act“). Subsection 6(1) and (2) of the Act provides as follows:

(1) A franchisee may rescind the franchise agreement, without penalty or obligation, no later than 60 days after receiving the disclosure document, if the franchisor failed to provide the disclosure document or a statement of material change within the time required by section 5 or if the contents of the disclosure document did not meet the requirements of section 5.

(2) A franchisee may rescind the franchise agreement, without penalty or obligation, no later than two years after entering into the franchise agreement if the franchisor never provided the disclosure document.

Franchisors may be surprised to learn that, even though a disclosure document has been delivered as required by the Act, the rescission period may remain as long as two years under some circumstances. The Court of Appeal for Ontario held in 6793241 v. Dollar It Ltd. (2009), 2009 ONCA 385, that even though eight months had passed between the signing of the franchise agreement and the delivery of recission notice, the agreement remained capable of recission, because the disclosure document, although delivered, was so defective that it essentially amounted to no disclosure at all.   The Court held that where a franchisee is not “provided with a document that enable[s it] to make an informed decision to enter the franchise agreement, then the franchise agreement might be rescinded within two years of entering the franchise agreement.”The decision highlights the importance of franchisors complying strictly with the disclosure requirements of the Act.