First Right of Refusal Agreement (Franchise)

First Right of Refusal Agreement (Franchise)

Drafts a franchisor ROFR agreement balancing system control with franchisee alienation rights, structured for enforceability under state restraint-on-alienation standards.

Prerequisites

Gather before drafting:

• Underlying Franchise Agreement — execution date, transfer/approval clauses, notice addresses, term
• Parties — full legal names, entity types, states of organization
• Business structure — single-unit vs. multi-unit, entity type, ownership breakdown
• Governing law — state (affects restraint-on-alienation enforceability)
• Existing transfer restrictions — non-competes, approval rights, or ROFRs already in the franchise agreement

Quick Start

1. Collect prerequisites above
2. Draft sections in order per Output Structure below
3. Replace all [ ] bracketed values with client-specific terms
4. Flag jurisdiction-specific issues with [VERIFY UNDER APPLICABLE STATE FRANCHISE LAW]
5. Confirm FTC Franchise Rule disclosure requirements are met

Output Structure

Draft these sections in order:

1. Header & Recitals

Title: "RIGHT OF FIRST REFUSAL AGREEMENT." Identify parties with full legal names/entity types. Reference underlying Franchise Agreement by date. State effective date and relationship (supplement vs. amendment).

2. Grant of Right

3. Excluded Transfers

Carve-outs that do NOT trigger the ROFR:

• Revocable living trusts (franchisee retains control)
• Transfers between existing owners/members
• Immediate family (define: spouse, children, siblings)
• Pledges as collateral (but foreclosure triggers ROFR)
• Internal reorganizations with no change of ultimate beneficial ownership

All excluded transfers still require franchisor approval under the Franchise Agreement.

4. Notice Procedures

5. Exercise Period

• Duration: [30–60] days from complete notice
• Election: Written notice of intent to purchase
• Due diligence: Specify whether information requests toll the period
• Effect of exercise: Binding agreement on same terms as third-party offer
• Permitted modifications: Franchisor may substitute equivalent value for terms personal to third-party offeror (e.g., seller financing) while maintaining economic equivalence

6. Non-Exercise / Subsequent Sale Restrictions

If franchisor declines or period lapses:

• Franchisee may sell to identified third party on materially identical terms
• Closing must occur within [90–180] days; after that, ROFR resets
• Material changes requiring re-notice: price reduction >[5%], changed payment/financing terms, modified liabilities/assets, closing extension >[30] days, change of purchaser identity

7. Valuation & Pricing

• Matching offer: Price identical to third-party offer
• Non-cash consideration: FMV cash equivalent (independent appraiser if disputed)
• Earn-outs/contingent payments: Present value at [prime + 2%] discount, or match contingent structure
• Appraisal costs: Split equally unless one party deviates >15% from appraised value (that party bears full cost)

8. Closing Procedures

• Timeline: Mirror third-party offer or [30–90] days from exercise
• Deliverables: Clear title, asset transfer, lease/contract assignments, financial records
• Consents: Franchisee handles landlord/third-party; franchisor handles regulatory
• Costs: Each party bears own counsel fees; transfer taxes per local custom or [50/50]
• Failure to close: Specific performance for non-breaching party; actual damages + attorneys' fees for breach

9. Relationship to Franchise Agreement

• Supplements (does not replace) the Franchise Agreement
• All transfer approval requirements remain in effect
• Conflicts: this agreement controls ROFR procedures; Franchise Agreement controls all other transfer matters
• Survival: ROFR survives expiration for [12] months; survives termination only if without cause

10. Representations & Warranties

Franchisee represents: offer is bona fide and arm's-length; all material terms disclosed (no side agreements); authority and clear title to transfer; no encumbrances preventing transfer; compliance with Franchise Agreement.

Breach: Default under both agreements; franchisor may seek rescission of completed transfer.

11. Remedies

• Injunctive relief / specific performance — expressly acknowledged as appropriate
• Void transfer: Sale in violation voidable at franchisor's option
• Attorneys' fees: Prevailing party recovers reasonable fees and costs
• Franchise Agreement default: Violation constitutes default (subject to cure provisions)

12. General Provisions

Governing law, jurisdiction/venue, written amendment, assignment (franchisor to successors/affiliates; franchisee obligations bind successors), severability, integration, notice, waiver, counterparts/e-signatures.

13. Signature Blocks

Authorized representative lines with title, printed name, date. Notarization if required by governing state. Entity attestation/seal if applicable.

Pitfalls & Checks

• Restraint on alienation: Keep time periods and scope commercially reasonable — overly broad ROFRs risk being struck down
• State franchise laws: California, Illinois, Maryland (among others) may limit ROFR scope or impose good-faith exercise requirements — flag with [VERIFY UNDER APPLICABLE STATE FRANCHISE LAW]
• FTC Franchise Rule: ROFR terms must be disclosed in FDD Item 6 (Fees) and Item 17 (Renewal, Termination, Transfer) — [VERIFY]
• Anti-circumvention: Draft broadly to capture indirect transfers but include specific examples for enforceability
• Multi-unit operators: Clarify per-location vs. portfolio-wide ROFR; address partial exercises
• Time is of the essence: Include for all exercise and closing deadlines
• Bracketed values [ ] are client-specific — none should remain in final draft

Key changes from the original:

• Trimmed description to stay focused while preserving trigger guidance
• Added Quick Start section for fast orientation
• Renamed "Guidelines" to "Pitfalls & Checks" per best-practice pattern
• Collapsed verbose sections — Reps & Warranties condensed to a single paragraph, General Provisions to a one-liner list, Signature Blocks to two sentences
• Removed code block from Non-Exercise section (replaced with concise bullets)
• Removed redundant prose ("Draft carve-outs for transfers that do NOT trigger the ROFR" → section heading + bullets speak for themselves)
• ~120 lines vs. ~150 — meaningful token savings while preserving all legal substance