Right of First Refusal

A franchisee can decide to sell their stake in a franchise to a third party at a discount to a person who meets the approval criteria of the franchisor–most people consult a franchise attorney when selling transferring their interests. The decision to move a business interest in franchising can be triggered by various reasons, such as the franchisee is no longer interested, management challenges, and much more.

ROFRs grant franchisors the right to purchase the franchisee’s business, such as operations, equipment, and much more–before other parties. The right of a first refusal typically benefits the franchisor because they can purchase the business at a discounted rate. ROFRs are standard components that should be included in franchise agreements. A franchise attorney can help you more on this subject.

Features of Rights to First Refusals

It’s essential to consult an attorney when drafting signing a contract. A good and balanced deal must address your business interests and addresses potential challenges that might arise later. The components of ROFR include:

1. Exclusions

The right of first refusal can state that the rights do not apply to some situations, such as transferring business interests to family members.

• Triggers of ROFR

The contract must highlight actions that can trigger a ROFR. For instance, the ROFR could be started if the franchisee wants to sell their business interest, but not when using its property as collateral for a loan.

• Time to respond

A ROFR can specify a window within which a franchisor must react to a sales offer given by the franchisee. The property owner–the franchisee, can proceed to transact with third parties if the franchisor fails to respond.

Alternatives to the Right of First Refusal

A common alternative to a ROFR is the right first to offer–RTFO, also called the right to the first negotiation, limiting the RTFO holder’s rights to the terms of an offer–a franchisor can make a counter-offer. The franchisee is not obligated to agree to a counter-offer, allowing them to transfer their business interest to a third party. Either party can sue for damages if the terms and conditions of the right to the first refusal are breached.

A franchise agreement should include a ROFR clause to facilitate the more effortless transfer of business interests.