Franchisor’s Obligations on Receipt of Rescission

By Tonya Mah

The Arthur Wishart Act articulates the franchisor’s obligations upon receipt of a notice of rescission, that is, within 60 days from the effective date of the rescission, the franchisor is obliged to:

1. refund the franchisee any money received from the franchisee other than money for inventory, supplies or equipment;
2. purchase from the franchisee any inventory the franchisee purchased that the franchisee still has, at the franchisee’s purchase price;
3. purchase from the franchisee any supplies and equipment that the franchisee purchased, at the franchisee’s purchase price; and
4. compensate the franchisee for any losses that the franchisee incurred in acquiring, setting up and operating the franchise, less the amounts set out in a) to c) above.

The above costs could be significant for a franchisor to incur.  As well, in the event that a franchisor receives a rescission notice and disputes the rescission, then legal fees and disbursements would be in addition to the fees above, and potentially fees associated with the arbitration process and an award to pay franchisee’s legal fees.  Although there may be exceptions to providing a disclosure document, it is good practice to provide a copy of the franchisor’s current compliant disclosure document in all instances to avoid a potential subsequent rescission claim as a result of the franchisor having failed to deliver the disclosure document.

Understanding franchise law is crucial for both franchisors, franchisees and prospective franchisees. The complexities of franchise agreements, disclosure requirements, and regulatory compliance demand careful consideration and expert guidance. By staying informed about the key aspects of franchise law, businesses can navigate the legal landscape more effectively, ensuring that their franchise operations are both legally sound and successful. For anyone involved in the franchise industry, remaining updated on legal developments and seeking professional advice can make a significant difference in achieving long-term success.

The outcome in franchise law is very fact specific, please contact Tonya Mah (tmah@sorbaralaw.com)should you have any questions or wish to obtain legal advice for your franchise or prospective franchise.