Understanding the Franchisor-Franchisee Relationship

The business and legal relationship between a franchisor and franchisee is governed by a franchise agreement, as well as other legal documentation. The party licensed to use the franchisor’s system and trade-marks is the franchisee. Although both the franchisee and the franchisor must fulfill the obligations detailed in the franchise agreement, generally speaking the franchise agreement details more specifically the obligations imposed upon a franchisee to operate the franchised business according to the conditions and terms detailed in a franchise agreement. Despite the execution of a franchise agreement and other legal documentation, mutual trust and respect is the essential foundation for a good franchisor and franchisee relationship. Understanding the roles of each party, as well as the limitations of the franchisor-franchisee dynamic, is critical to developing a healthy, successful relationship.

While it is true that the franchisor trains and instructs the franchisee in properly operating the system, and requires that the franchisee operated the franchised business within the boundaries and rules established by the franchisor, it is the franchisees themselves who are responsible for the operation of the franchised business, and ultimately its success or failure.

In Canada, there are 5 provinces which have franchise specific legislation (Franchise Legislation). This Franchise Legislation requires that a franchisor deliver to a prospective franchisee a franchise disclosure document (FDD) which contains all of the required information about the franchisor and the franchise system (called material facts), copies of all agreements that the franchisee is to sign regarding the franchise as well as the information and documentation specified by the relevant provincial Franchise Legislation. A franchisor is required to deliver to a franchisee the FDD at least 14 days before the franchisee signs any agreement relating to the franchise or pays any consideration. During this 14 day period, franchisees have the opportunity to examine all documents and to receive professional advice from their lawyers, accountants, in regards to franchised business opportunity being considered by the franchisee.

It is of the utmost importance that franchisees inform themselves about what they are getting into. All of the material provided by the franchisor must be carefully reviewed and understood in detail, in order to empower the franchisee to make an informed decision about entering what can be a long and all-consuming business relationship. The more realistic a franchisee’s expectations are, and the better the franchisee understands the franchisor’s interests and expectations, the greater the chances are that the franchisee will be successful.

Mr. David Kornhauser, one of the lawyers behind the website www.franchisingforum.ca, provides advice about franchise law to clients in Ontario and across Canada. You can reach Mr. Kornhauser either at or david@franchisingforum.ca.

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