Can Your Right Of First Refusal Be Easily Circumvented?

Nearly all franchising agreements contain a right of first refusal stipulated in favour of the franchisor in the event the franchisee would like to sell its franchised business.

Such a right of first refusal plays a significant role in maintaining the integrity of any franchise system. It is therefore an important tool, enabling the franchisor to avoid being compelled to welcome within its network a new franchisee that it finds unsuitable. It can also prevent a competing network from attempting, through attractive offers, to purchase establishments of the franchise network, in order to bring them into its own network.

To ensure enforcement of the right of first refusal granted to the franchisor, some franchising agreements also provide for penalties in the event where this right is breached.