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First Right to Purchase in Franchise Agreements

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By: Lance Winslow

In any franchise company there will be cases where one franchisee will wish to retire, cashed out of their business or sell it to someone who has offered them more than they can refuse. It is a fact of life in the modern franchise world.

Whether it is for a master franchise or a single franchised outlet each franchisor generally has either a clause in their franchise agreement for first right of refusal or first right of purchase. In my franchisee company, I could see that there were times when I wanted both clauses in my franchise agreements.

There are cases where you'll want first right of refusal, but there are also times when you want first right of purchase. In consideration of this you may wish to add a right of first purchase in your franchise agreements. Most franchise attorneys who draw up franchise disclosure documents do use boilerplate clauses for first right of refusal. I decided in our franchise company that, that was not enough for me. Below is the additional clause that I added to our franchise agreements;

5.5 Right of First Purchase

Franchisor requires Franchisee (or Master Franchisee) to give Franchisor the right of first purchase prior to soliciting offers from a third party if Franchisee chooses to sell their Franchised Business. Franchisee agrees to notify Franchisor in writing if Franchisee desires to sell or transfer Franchisee’s interest in their Franchised Business. Franchisor must elect to exercise Franchisor’s option to purchase Franchisee’s Franchised Business within thirty (30) business days after Franchisor’s receipt of Franchisee’s written notification. If Franchisor offers Franchisee an amount that Franchisee doesn’t agree to, Franchisee may try to sell to a third party. Franchisee is obligated before any transfer to a third party to make sure that they meet all criteria set forth above under the heading “Transfer by Franchisee”.

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If you own a franchise company, you would be well advised to talk to an experienced franchisor attorney and ask them be a right of first purchase clause makes sense for your particular business and franchise model. It may or it may not there are several reasons why. I hope this may help you in your search to consider adverse potential eventualities that could harm your franchise company in advance so that you do not have to learn saying was the hard way like I did. Consider this in 2006.

Lance Winslow - Online Think Tank forum board. If you have innovative thoughts and unique perspectives, come think with Lance; www.WorldThinkTank.net/wttbbs/

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