How to analyze a Franchise Disclosure Document – A guide for lawyers

Franchise rescission rights in Ontario 

An FDD isn’t just a formality – if it’s missing critical elements under Ontario’s Arthur Wishart Act (Franchise Disclosure), 2000 (or similar laws elsewhere), it’s not considered a “Disclosure Document”. A deficient FDD is as good as no FDD at all.  

If a franchisee received an invalid FDD – or none – they can rescind the entire deal – the purchase, the lease, and all related investments and losses.

The Act offers two rescission paths: 

• Section 6(1): A flawed FDD is delivered, and the franchisee issues a Notice of Rescission within 60 days of receipt. 

• Section 6(2): No FDD is provided, giving the franchisee two years from signing the Franchise Agreement to rescind. 

For a full breakdown of these scenarios and related claims, see Franchise rescissions in Ontario: a disclosure document primer.

Does it include the essentials? 

A valid FDD must deliver all required information in a single document at one time. Fragmented or non-compliant disclosure opens the door to rescission claims with significant financial fallout. Our eBook The five top franchise disclosure deficiencies for lawyers, explores Ontario cases where key components were absent or flawed. 

Here is what’s non-negotiable: 

1. A signed and dated franchisor’s certificate  

• Signed and dated by one director or officer if that’s all there is, or by two if there are multiple. 
• It certifies the FDD contains no misrepresentations and includes all material facts, financial statements, and details required by the Act and Regulation. 
• Details in Certificate, financial statements and costs: a disclosure document primer. 

2. Complete financial statements 

• Financials for the most recent fiscal year, audited or prepared on a review engagement basis per Canadian GAAP or equivalent standards. 
• Exemptions apply in rare cases – see Certificate, financial statements and costs: a disclosure document primer. 

The financial statements are required to be audited or prepared on a “review engagement basis”, i.e., in accordance with generally accepted accounting principles that meet or exceed the review and reporting standards applicable to review engagements set out in the Canadian Institute of Chartered Accountants Handbook.

3. All agreements that franchisees must sign 

• The franchise agreement plus any others – such as leases, subleases, security agreements, or guarantees—delivered together. 
• For retail franchises, lease terms are material facts; omitting them can invalidate the FDD. 
• More in Projections, agreements, leasing & background info: a disclosure document primer.  

4. All material facts

• “Material fact” covers anything about the franchisor, its associates, or the system that could sway the franchise’s value or the decision to buy. It’s a broad net and a frequent rescission trigger. 
• Mandatory background on the franchisor and its leaders (e.g., bankruptcies, convictions) requires a formal statement. Full list in Projections, agreements, leasing & background Info: a disclosure document primer.
• System and location details vary – our eBooks on daycare, QSR and retail offer examples. 
• See Material facts, material changes and franchisor’s associates: a disclosure document primer for the deep dive

5. Additional required information  

• Costs: Disclose deposits, fees, inventory, equipment, leases—everything. Note if they’re refundable and when. More in Certificate, financial statements and costs: a disclosure document primer. 
• Background: Franchisor’s history, directors, partners, officers, and a franchisee list (including terminations). 
• Projections: Operating costs or earnings aren’t mandatory, unless they could constitute material facts. If included, they need a basis, assumptions, and supporting evidence. Details in Projections, agreements, leasing & background info. 
• Material Changes: Post-FDD changes affecting the deal must be disclosed in a statement. Covered in Material facts, material changes. 

Conclusion: Avoid the pitfalls 

For lawyers advising franchise clients, mastering FDD analysis is critical. A non-compliant FDD can unravel deals and spark costly disputes. You need to scrutinize every element, identify what’s material, and flag risks – such as sharing projections or agreements outside the FDD that could trigger rescission. 

A thorough, accurate FDD isn’t just compliance – it’s the foundation for solid franchise relationships. Refer to our Disclosure Document Primer Series for comprehensive guidance. It’s effort well spent. 

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The information contained in this article is provided for informational purposes only and does not constitute legal advice. Readers should not act on this information without seeking professional legal advice from a lawyer experienced in this area. The content in this article may not reflect the most current legal developments, and the application of law can vary in different provinces and territories. As such, the information in this article is not guaranteed to be complete, correct, or up to date. The author and the publisher of this article disclaim all liability for any actions taken or not taken based on any or all of the contents of this site. 

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