Buying and Selling a Franchised Business in Ontario

Buying an existing franchise can look simpler than opening a new location. The business is already operating, there may be employees and customers in place, the premises are built out, and the buyer can review historical financial information before committing.

In practice, however, the purchase of an existing franchised business can be more complicated than an ordinary business acquisition. There are usually at least three relationships that need to work together: the transaction between the buyer and seller, the buyer’s relationship with the franchisor, and the lease or other arrangement governing the business premises.

I’m Raz Toor, the founder of Falcon Law PC. We regularly act on the purchase and sale of franchised businesses in Ontario. One thing I see repeatedly is that the purchase agreement cannot be reviewed in isolation. A buyer can negotiate a good deal with the seller and still have a problem if the franchisor does not approve the transfer, the lease cannot be assigned, financing does not materialize, or the new franchise agreement contains obligations the buyer did not anticipate.

This guide discusses the issues I would consider when buying or selling an existing franchise in Ontario.

A Franchise Resale Is Really Several Transactions at Once

An ordinary business purchase primarily involves the buyer and seller. A franchise resale brings additional parties into the transaction.

Depending on the business, the deal may involve:

• the buyer;
• the seller;
• the franchisor;
• the landlord;
• the buyer’s lender;
• a vendor providing seller financing;
• equipment lessors;
• suppliers;
• regulatory bodies; and
• other parties whose approval or cooperation is required.

The closing needs to be structured so these pieces come together at approximately the same time.

That is why I generally prefer to identify the franchise and lease requirements during due diligence rather than after the purchase agreement has effectively become unconditional.

Is the Buyer Purchasing Assets or Shares?

The first major transaction question is whether the buyer will purchase the assets of the franchise business or the shares of the corporation that operates it.

Asset Purchase

In an asset purchase, the buyer acquires specified business assets. Depending on the franchise, this may include:

• equipment;
• furniture and fixtures;
• inventory;
• goodwill;
• customer-related assets;
• telephone numbers;
• certain contracts;
• leasehold improvements;
• website or digital assets; and
• other assets required to operate the location.

The buyer will typically establish or use its own corporation and become the new franchisee.

An asset transaction can give the buyer more ability to identify which liabilities it is and is not assuming, although statutory and other successor-liability issues still need to be considered.

Share Purchase

In a share purchase, the buyer purchases the shares of the existing franchisee corporation.

The corporation remains the same legal entity after closing. It continues to own its assets, employ its employees, remain party to contracts and carry its historical liabilities.

A share structure may simplify certain operational transitions, but the buyer is acquiring the corporation’s history as well as its business. That generally makes corporate, financial, tax and legal due diligence particularly important.

For a broader comparison, see our guide to asset purchases and share purchases in Ontario.

The Franchisor Usually Has an Important Role in the Transfer

A franchisee generally cannot assume that it is free to sell the franchised business to anyone it chooses.

Franchise agreements commonly contain detailed transfer provisions. These may require the franchisor to approve:

• the proposed buyer;
• the buyer’s financial qualifications;
• the buyer’s experience;
• the buyer’s corporate structure;
• the owners and guarantors behind the purchaser;
• the buyer’s completion of training;
• the proposed transaction structure; and
• the documents used to complete the transfer.

The seller may also need to be in good standing with the franchisor before approval will be given.

I would therefore review the existing franchise agreement early to determine exactly what must happen before the seller can transfer the business.

Franchisor Approval May Come With Conditions

Approval is not always a simple signature.

A franchisor may require conditions such as:

• payment of a transfer fee;
• completion of training;
• execution of the franchisor’s current form of franchise agreement;
• new personal guarantees;
• renovations or upgrades;
• replacement of equipment;
• updated signage or branding;
• implementation of current technology systems;
• payment of outstanding amounts owing by the seller; or
• execution of releases or other transfer documents.

For a buyer, these costs need to be identified before deciding what the business is actually worth.

A $400,000 business can become a very different economic proposition if the buyer learns late in due diligence that another $150,000 of renovations and equipment upgrades will be required shortly after closing.

Will the Buyer Receive a New Franchise Agreement?

One of the most important questions is whether the buyer will assume the seller’s existing franchise agreement or enter into the franchisor’s current form of agreement.

If the buyer signs a new agreement, the economic and legal terms may differ significantly from those under which the seller has been operating.

Potential differences can include:

• higher royalty rates;
• different advertising contributions;
• a shorter or longer term;
• different renewal rights;
• expanded personal guarantees;
• new technology obligations;
• different territory protections;
• additional renovation obligations;
• different transfer restrictions; and
• new post-termination restrictions.

The buyer should therefore review the agreement that it will actually be signing rather than relying solely on the seller’s historical agreement.

Our franchise law practice assists buyers with franchise agreement and disclosure-document reviews as part of resale transactions.

Does the Buyer Need a Franchise Disclosure Document?

Ontario’s Arthur Wishart Act (Franchise Disclosure), 2000 generally requires a franchisor to provide a prospective franchisee with a disclosure document at least 14 days before the prospective franchisee signs the franchise agreement or another agreement relating to the franchise, or pays consideration to the franchisor or its associate, subject to the statutory rules and exceptions.

Franchise resales can create a more nuanced disclosure analysis because the Act contains an exemption for certain grants by an existing franchisee where specified conditions are met.

That exemption should not simply be assumed to apply because the location is already operating.

Among other things, the legislation distinguishes between a transfer being made by the franchisee for its own account and a transaction that is effected by or through the franchisor. The Act also specifically addresses circumstances where franchisor approval or a transfer fee alone will not necessarily prevent the exemption from applying.

Whether disclosure is legally required therefore depends on how the resale is structured and the franchisor’s involvement.

From the buyer’s perspective, even apart from the technical disclosure analysis, obtaining and reviewing current information about the franchise system can be extremely valuable before committing to the purchase.

Review the Disclosure Document as Part of the Business Acquisition

Where a disclosure document is provided, it should not be treated as a separate exercise from due diligence on the business.

The buyer should compare what the franchisor discloses against what the seller is representing.

For example:

• Do the royalty and advertising fees match?
• Are required renovations disclosed?
• Are there supplier requirements that affect margins?
• Are there technology fees or mandatory systems?
• Does the territory match what the seller represented?
• Are there upcoming renewal issues?
• Are there restrictions on products or services?
• Does the franchisor disclose litigation or system-wide issues that matter to the buyer?
• Is the financial information consistent with the buyer’s understanding of the business?

The seller’s financial statements tell you how that particular location has performed. The franchise disclosure material tells you something different: the legal and commercial framework in which the buyer will be required to operate.

The Commercial Lease Can Determine Whether the Deal Works

For many franchised businesses, the premises are one of the most important assets in the transaction.

The buyer should review:

• the remaining lease term;
• renewal options;
• base rent;
• additional rent and operating costs;
• assignment provisions;
• landlord consent requirements;
• personal guarantees;
• permitted use;
• exclusivity rights;
• relocation and demolition provisions;
• repair obligations;
• signage rights;
• restoration obligations; and
• any defaults or outstanding landlord issues.

An asset purchase will commonly require a lease assignment, sublease or new lease.

In a share purchase, the tenant corporation may remain the same, but the lease can still contain a change-of-control provision requiring landlord approval.

This is why our commercial leasing work frequently overlaps with franchise acquisitions.

Franchise Term and Lease Term Should Be Compared

This sounds basic, but it can have major consequences.

Suppose a buyer pays a substantial amount for an existing franchise but discovers that:

• the franchise agreement expires in three years;
• the lease expires in four years;
• neither renewal is automatic; and
• significant renovations will be required before renewal.

The buyer may be purchasing much less long-term certainty than the purchase price initially suggests.

I therefore like to place the franchise agreement and lease side by side and ask whether the buyer has a realistic path to operating the business for the period contemplated by its investment.

Conduct Due Diligence on the Business Itself

Being part of a recognized franchise system does not eliminate the need for ordinary acquisition due diligence.

Depending on the business, I would consider reviewing:

• financial statements and tax returns with the buyer’s accountant;
• point-of-sale records;
• royalty reports;
• inventory;
• equipment ownership and condition;
• equipment leases;
• PPSA registrations and liens;
• supplier contracts;
• employees;
• customer obligations and deposits;
• insurance claims;
• litigation;
• regulatory matters;
• franchisor defaults;
• landlord defaults; and
• other liabilities that could affect the business after closing.

A franchise brand can provide an operating system. It does not guarantee that a particular location is profitable, well maintained or free from legal problems.

Understand Exactly What Inventory Is Included

Inventory frequently requires its own closing mechanism.

Some transactions include a normal level of inventory within the purchase price. Others provide for inventory to be counted immediately before closing and purchased separately.

The agreement should address how the parties treat:

• expired inventory;
• damaged goods;
• obsolete products;
• short-dated inventory;
• consigned goods;
• unsaleable products;
• supplier credits; and
• inventory that does not meet franchisor standards.

For businesses such as restaurants, pharmacies and retail franchises, inventory can represent a meaningful closing adjustment and should not be left to a handshake immediately before closing.

Equipment Should Be Verified, Not Assumed

The fact that equipment is physically located at the business does not necessarily mean the seller owns it.

Some equipment may be:

• leased;
• financed;
• owned by the franchisor;
• supplied by a vendor;
• subject to a security interest; or
• due for replacement under the franchise system.

The buyer should know which assets are actually included and whether they will be transferred free of security interests at closing.

Employees Need to Be Addressed Before Closing

Existing staff may be an important part of the value of an operating franchise.

In an asset transaction, the buyer and seller should determine which employees, if any, will receive offers from the purchaser and how accrued entitlements will be handled.

Ontario’s employment legislation contains continuity-of-employment provisions where a purchaser of a business employs employees of the seller, so a buyer should not simply assume that prior service disappears because a new corporation becomes the employer.

In a share purchase, the employing corporation generally remains the same and employment relationships continue unless separately changed.

Financing Conditions Should Be Realistic

Many franchise acquisitions are conditional on third-party financing.

The buyer’s lender may want:

• financial statements;
• tax returns;
• franchise documentation;
• the lease;
• equipment lists;
• an appraisal;
• security over the purchased assets;
• personal guarantees; and
• franchisor or landlord documentation.

The financing deadline in the purchase agreement should give the buyer enough time to complete that process.

I would also avoid treating financing as entirely separate from legal due diligence. If the lender requires a satisfactory lease assignment or franchisor approval, those requirements become part of the transaction timeline.

Vendor Financing Can Help Bridge the Purchase Price

Some franchise resales involve a vendor take-back, commonly called a VTB, where the seller finances part of the purchase price.

That can help a buyer complete the acquisition, but the terms need to be clear.

The parties should address:

• principal amount;
• interest;
• repayment schedule;
• whether early repayment is allowed;
• security;
• personal guarantees;
• defaults;
• acceleration;
• priority relative to the bank; and
• whether the seller must postpone its security to the acquisition lender.

If vendor financing is part of the economics of the deal, I prefer to address it in the letter of intent rather than first raising it when the purchase agreement is already being drafted.

Transfer Fees and Other Franchise Costs Need to Be Allocated

Franchise transfers can generate expenses that would not exist in a non-franchised business sale.

These can include:

• franchise transfer fees;
• training costs;
• legal-document fees charged by the franchisor;
• renovation costs;
• equipment upgrades;
• signage replacement;
• technology upgrades;
• new security deposits; and
• landlord assignment fees.

The buyer and seller should decide who bears those costs rather than discovering them shortly before closing.

The Seller Should Focus on Getting Properly Released

A seller’s job is not finished merely because the purchase price is paid.

The seller should determine whether it and its owners are being released from:

• the franchise agreement;
• personal guarantees;
• the commercial lease;
• landlord indemnities;
• equipment leases;
• bank security;
• supplier obligations; and
• other continuing commitments.

A seller who transfers the business but remains personally liable under a lease or franchise guarantee has not achieved a clean exit.

Releases should therefore be treated as substantive closing documents rather than administrative paperwork.

The Purchase Agreement Should Tie the Pieces Together

The definitive purchase agreement should reflect the dependencies that actually determine whether the transaction can close.

Depending on the deal, closing conditions may include:

• satisfactory legal and financial due diligence;
• franchisor approval;
• receipt and review of franchise documentation;
• landlord consent;
• satisfactory financing;
• execution of a lease assignment or new lease;
• training completion;
• lien discharges;
• regulatory approvals;
• transfer of required contracts;
• delivery of closing inventory information; and
• other matters specific to the franchise system.

The objective is to avoid a situation where the buyer is legally required to purchase the business even though it cannot obtain the franchise rights or premises required to operate it.

What We Have Been Working On in 2026

Several of our recent transactions illustrate how different franchise resales can be even though they all involve the purchase of an operating franchised business.

In one matter, we have been acting for the purchaser of an Ontario pharmacy in an approximately $560,000 asset acquisition. The transaction has involved not only the business purchase agreement but also franchise documentation, the existing head lease and renewal documents, inventory, equipment, supplier arrangements, security interests, employee issues and the steps required for the buyer to operate the location after closing.

In another matter, we advised on the proposed acquisition of an operating franchised fitness business for approximately $375,000. The proposed purchase required the buyer to consider the franchise disclosure materials, franchise agreement, lease, due diligence period and the relationship between the franchisor’s requirements and the business acquisition itself.

We have also recently worked on a proposed $100,000 restaurant and dessert franchise acquisition structured as an asset purchase. That deal included bank financing, a vendor take-back of part of the purchase price, a franchise transfer fee, inventory and equipment review, financial due diligence, landlord approval and franchisor approval.

What these files have reinforced for me is that buying a franchise is rarely just a franchise-law matter or just an M&A matter. The buyer is acquiring an operating business while also entering or continuing a long-term relationship with a franchisor and, in many cases, a landlord.

Those three pieces need to be reviewed together.

The examples above have been anonymized and certain transaction values and details have been generalized or rounded to protect client confidentiality.

A Practical Checklist for Buyers

Before purchasing an existing franchise, I would want a buyer to understand:

• Is the transaction an asset or share purchase?
• Exactly what assets are included?
• What liabilities, if any, are being assumed?
• Does the franchisor need to approve the buyer?
• Will the buyer receive a disclosure document?
• What franchise agreement will the buyer sign?
• What are the royalty and advertising fees?
• How much time remains on the franchise term?
• What renewal rights exist?
• Are renovations or equipment upgrades required?
• Is there a franchise transfer fee?
• Does the lease need to be assigned?
• Will the landlord release the seller and accept the buyer?
• How much time remains on the lease?
• Are there personal guarantees?
• What equipment is actually owned by the seller?
• How will inventory be calculated?
• Are there liens or security registrations?
• What happens to employees?
• Is financing required?
• Is vendor financing involved?
• What approvals must be obtained before closing?

A Practical Checklist for Sellers

A seller should be thinking about many of the same issues from the opposite perspective:

• Does the franchise agreement permit the proposed transfer?
• What does the franchisor require before approval?
• Is the seller currently in good standing?
• Who pays the transfer fee?
• Does the landlord need to consent?
• Can the seller obtain releases from guarantees?
• Which liabilities remain with the seller?
• How will inventory and closing adjustments be calculated?
• Will any purchase price be paid after closing?
• What security will be available for vendor financing?
• What non-competition or transition obligations will continue?
• What must be delivered to the buyer on closing?

How Falcon Law PC Can Help

Falcon Law PC acts for buyers and sellers of franchised businesses in Ontario. Our work can include letters of intent, asset and share purchase agreements, franchise disclosure and agreement reviews, legal due diligence, commercial leases, franchise and landlord consents, financing-related documents, negotiations and closing.

Because these transactions overlap with several areas of our practice, we can review the franchise relationship and the underlying acquisition as parts of the same deal rather than treating them as unrelated documents.

You can learn more about our franchise legal services and our business purchase and sale practice.

If you are considering buying or selling an existing Ontario franchise, I generally recommend reviewing the franchise agreement, disclosure issues and lease at the same time as the purchase agreement. Those documents often determine whether the transaction can actually close on the terms the parties expect.

This article is intended for general informational purposes only and does not constitute legal, tax, accounting, financial or investment advice. Franchise disclosure obligations, transfer requirements and transaction structure depend on the particular franchise system, agreements and circumstances involved.