Franchise Regulator in Ontario
"They wanted a regulator to review the quality of disclosure given to franchisees, an inexpensive system to resolve disputes, rules to govern contractual relationships and penalties for breaking franchise law."We support this bill, but on the clear understanding that this is only the first step and not the last step towards franchise legislation," Municipal Affairs Minister John Gerretsen said in the Legislature May 17, 2000.
Toronto franchise lawyer Ben Hanuka, chairman of the joint subcommittee on franchising for the Ontario Bar Association, says he thinks it's about time the Liberals brought forward new legislation.
Some franchisors are not giving adequate disclosure, and franchisees who have already invested a life's savings at the age of 40 or 50 are having to spend $50,000 to $100,000 to enforce their rights under franchise law to rescind their contracts and recover payments. In some cases, the franchisor will not have the money to refund payments, or to compensate the franchisee for his legal costs to win a judgment.
"When a franchisee files a notice of rescission, the franchisor says: `Sue me'," Hanuka said. "If the franchisor is bad enough not to give you a disclosure document to begin with, most likely he will not refund the money,'' as we have seen with 3 for 1 Pizza & Wings (Canada) Inc. and Pizza One Group Inc.
The Toronto Star reported this week that former franchisees are waiting to collect about $1.1 million in court awards, plus legal costs and interest, from Reza (Anthony) Solhi of Richmond Hill, his former 3 for 1 Pizza franchise chain and related companies.
Meanwhile, Solhi and his family are facing a new string of lawsuits and default judgments and a police investigation at Pizza One, the first of three new franchise operations they have marketed from offices in Thornhill since 2004."
Would a regulator have helped Solhi and his family?
Well, no, no and maybe.
Here is a summary of what I believe about prospective franchisees and business opportunties investors and their due diligence.
1. Nobody pays for bad news: due diligence from a lawyer, government agency or other agency is designed to produce bad news about a franchise opportunity. Anyone that skeptical about the opportunity doesn't need to pay for the information. The person that needs the information won't pay
for it. This a psychological truth that is well known to franchise lawyers.
2. The cost of serious due diligence on a franchise is about $3000 - $3500, out of the reach for the ordinary franchisee. But this is affordable if 10 or more prospective franchisees wanted the same due diligence.
3. A large part of the high cost of due diligence is: a) the unavailability of the franchisor's disclosure documents, unlike for example in Calforinia where there is a free public accessible site to review UFOC's, b) franchisees looking for confirmation of their views, see for example the many posts on the franchise-chat forum after they are hooked on the concept, and c) the relative inexperience of most general lawyers to adequately review a franchise agreement.
In conclusion, prospective franchisees will be better served if
a) the cost of serious due diligence on a franchise was equivalent to the cost of a home inspection -a loss you could walk away from- and;
b) the general bar could afford the equivalent of title insurance when reviewing a franchise agreement for their client - a standardized list of what could go wrong in the contract, such as the American Association of Franchisees and Dealers Fair Franchising Standards, which can be accessed
here.
Finally, what should be the role of the both the provincial and federal government? No regulator can provide a substitute for individual due diligence and it is folly to believe otherwise. None of the active state securities regulators on franchise opportunities believe that they are substituting their skill for individual due diligence.
But, one step that the either government could undertake, with no changes to either the Franchise Disclosure Act or the Competition Act, would be to monitor franchise and business opportunities trade shows to see that the participants actually have a real disclosure document. The State of Florida routinely does this with trade shows in Florida; trade show promoters may be liable for misleading advertising otherwise.
Read More From BizOp News
February 27, 2007
More Complaints about Reza Solhi
The Winnipeg Free Press has more complaints about Reza Solhi: "HISHAM ALARD did a double take when he tuned into a television news show recently about a pizza franchise scam where Canadians lost their life savings.
Alard was among a group of pizza franchise buyers who hoped to make lots of dough, but ended up being burned by the chain, operated out of Toronto.
CTV primetime investigative news show W-5 aired a full feature on the pizza pie- in-the-sky titled Taking Your Dough. It also reported Toronto police had been investigating the chain and even the same man with whom Alard struck his deal. That man was Torontonian Reza Solhi. Solhi could not be reached for comment.
According to W-5, there were dozens of cases just like Alard's with similar franchises going back years, all run under different names, including 3 for 1 Pizza, the Pizza One, Pizza Uno and Anthony's Kitchens. Toronto police uncovered a trail that went back a decade." (my emphasis)
Apparently, Reza Solhi is going by the name of "Bobby" Solhi these days. He is operating a wholesale business in Scarborough.
Why does Reza Solhi and others like him continue to get away with fraud?
Well consider the so-called due diligence advice given out by the Canadian Franchise Association:
"While even the best businessman can fall victim to a professional con artist, there are ways to minimize your chances of being taken when buying a franchise.
The Canadian Franchise Association (CFA) posts a list of questions to ask franchisers on its website and also requires all of its members to comply with a code of ethics that includes providing potential buyers with disclosure documents.
Such documents are only legally mandatory in Ontario, Alberta and Prince Edward Island, but CFA members in all provinces must provide them. The documents include information on who runs the franchise, whether any stores have closed or gone bankrupt, and whether any litigation is ongoing. They will also provide a list of existing franchisees.
"You should talk to them. That's going to be your best source of validating whether the information you're getting from the franchiser is valid," says Lorraine McLachlan, president and CEO of the CFA. Pizza One was not a member of CFA, she said."
I have no problem with the CFA, but it is nonsense to think that a trade association funded primarily by franchisors is going to give you proper due diligence for nothing.
The CFA is not going to review the franchisor's disclosure document. That is just silly.
And in any event, the disclosure document in this case was so flawed that any professional that you retained should have told you that; many of Solhi's victims didn't obtain professional advice, even when they had hired a lawyer.
