Franchise Disclosure Exemptions (Ontario)

Section 5 of the Arthur Wishart Act (Franchise Disclosure), 2000 requires a franchisor to give every prospective franchisee a franchise disclosure document before any franchise agreement is signed or money is paid. Section 5(7) lists the grants to which that section does not apply. When an exemption applies, the franchisor owes no disclosure document or statement of material change.

An exemption only switches off section 5. The duty of fair dealing in section 3, the right to associate with other franchisees in section 4, the rule voiding clauses that restrict Ontario law or courts in section 10, and the ban on waivers in section 11 still apply.

An exemption also differs from an exclusion. Section 2(3) takes some relationships outside the Act altogether, among them employment, partnerships and a trademark licence that is the only one of its kind the licensor grants in Canada. Whether a deal is a franchise at all, and whether an exclusion applies, comes before any exemption question. Section 12 puts the burden of proving an exemption or exclusion on the person claiming it, usually the franchisor.

Thresholds are current as of October 2026 and have applied since September 1, 2020.

Total initial investment is calculated under section 9 of O. Reg. 581/00 from all of the franchisee's costs of establishing the franchise, including any payment to the franchisor. Before September 1, 2020, these tests measured annual investment to acquire and operate the franchise, with thresholds of $5,000 and $5,000,000.

When an existing franchisee sells, the buyer gets no disclosure document if all four conditions in section 5(7)(a) are met. The Act defines a grant to include selling an interest in a franchise, including shares of the corporation that owns it, so a share purchase of a franchisee company raises the same question as an asset sale.

The fourth condition does the work: the grant must not be effected by or through the franchisor. Section 5(8) says a franchisor does not effect a grant merely because it has a right, exercisable on reasonable grounds, to approve the buyer, or because it charges a transfer fee set in the franchise agreement or limited to its reasonable costs.

In 2189205 Ontario Inc. v. Springdale Pizza Depot Ltd., 2011 ONCA 467, the Court of Appeal held that, given the purpose and context of the Act, the resale exemption must be narrowly construed. It is available only when the franchisor is not an active participant in bringing about the grant and does nothing more than exercise its rights to consent. The franchisor there had directed the buyers to the location, had some involvement in the negotiations and required two documents the seller had never signed, including an acknowledgment that the buyers did not rely on the franchisor for the store's sales figures. The exemption failed, no disclosure document had been given, and the buyers were entitled to rescind. It followed an earlier Superior Court decision in which demanding a guarantee from the buyer's spouse, which the agreement did not require, took a resale outside the exemption.

For buyers, an exempt resale means no statutory disclosure safety net. Protection comes from due diligence on the business and its lease, the seller's representations and warranties in the purchase agreement, and the transfer and first-refusal clauses in the franchise agreement, explained in our franchise transfer and exit guide.

Separately from section 5(7), section 11 of O. Reg. 581/00 lets a large, established franchisor leave its financial statements out of an otherwise complete disclosure document. It is not an exemption from disclosure. The franchisor must still deliver the full document and include a declaration that it is exempt and meets the criteria:

• consolidated net worth of at least $5,000,000, or at least $1,000,000 if it is controlled by a corporation worth at least $5,000,000;
• at least 25 franchisees operating in Canada at all times during the preceding five years, or 25 in a single other jurisdiction, directly or through a controlling corporation;
• at least five years continuously in the line of business, directly or through a controlling corporation; and
• no judgment, order or award made in Canada, or in that other jurisdiction, in the preceding five years against the franchisor, its associates, directors, general partners or officers relating to fraud, unfair or deceptive practices or franchise law.

The exemption stops being effective if the franchisor no longer meets the criteria, for example if its net worth falls below the threshold or an adverse judgment is made.

A franchisor that relies on an exemption the facts do not support has given no disclosure at all, which exposes it to the two-year rescission remedy. Common failure points:

• Resales. A franchisor that finds the buyer, negotiates terms, or adds conditions beyond its contractual consent rights risks effecting the grant.
• No material change. The additional-franchise and renewal exemptions fail if anything with a significant adverse effect on value has changed since the last agreement, which can include a new fee structure or the franchisor's financial decline.
• Investment thresholds. A total initial investment estimated at $3.1 million, or at $14,000, sits close enough to a threshold that a franchisor relying on the exemption should document the calculation and its sources.

When the facts are uncertain, a full document is usually cheaper than defending an exemption. Lamba Law's free FDD readiness checker helps a franchisor test a draft package, and our franchise law practice advises on exemptions for franchisors, sellers and buyers.

Leila Haddad owns the corporation that operates a franchised tutoring centre in Mississauga. Victor Mensah agrees in principle to buy all of its shares for $285,000. Her franchise agreement requires the franchisor's consent to any change of control, a $7,500 transfer fee and completion of training by the new owner.

In October 2026 the franchisor's development manager, who introduced Victor to Leila, asks Victor to sign a new personal guarantee and a royalty addendum raising the royalty from 7 to 8 per cent, neither of which Leila's agreement requires. Victor's lawyer advises that a share sale is a grant under the Act, and that the franchisor's introduction and added conditions put the resale exemption in doubt.

Rather than risk a two-year rescission claim, the franchisor delivers a full disclosure document at least 14 days before Victor signs the share purchase agreement or any franchise documents. It shows that four of 22 Ontario centres left the system in the last fiscal year. Victor uses that information and his own due diligence to negotiate a $20,000 price reduction and a 12-month holdback from Leila before signing.