How does a franchisor’s right of first refusal work when I sell?

A right of first refusal gives its holder the chance to buy before you complete a sale to someone else. Here, the holder is the franchisor, and the right exists only if your franchise agreement says so. If it does, the clause decides how the process runs, so the first job is to find it and read it closely, ideally before you sign anything with a buyer.

The right comes from the contract

The franchise Acts of Ontario, Alberta and British Columbia do not use the phrase. Franchising is regulated province by province, and the Canadian Franchise Association notes that several provinces have legislation setting disclosure requirements, duties of fair dealing and rights of association, with important differences between jurisdictions. Whether a right of first refusal applies to your sale, and how, is therefore a matter of the wording you signed.

What to read in the clause

• What triggers the right: a signed offer, a letter of intent, or any proposed sale.
• What you must send the franchisor, and whether the buyer’s identity and price must be shared.
• How long the franchisor has to decide, and when that period starts.
• Whether the franchisor must match every term or only the price.
• What happens if the franchisor declines: whether you may sell to that buyer, whether the right returns if terms change, and whether separate transfer consent is still needed.

Fair dealing still applies

Ontario’s Arthur Wishart Act says every franchise agreement imposes a duty of fair dealing in its performance and enforcement, and that the duty includes acting in good faith and in accordance with reasonable commercial standards (s.3). British Columbia’s Franchises Act adds that the duty applies in the exercise of a right under the agreement (s.3(1)). A franchisor that exercises a first refusal right in a way that stalls your sale could be tested against that standard, but whether a given step breaches it is a question for a lawyer reading your agreement.

Plan the timing with your buyer

Tell any buyer about the right at the start, and ask whether the offer should be conditional on the franchisor’s decision. Build the franchisor’s decision period into your closing date, and confirm in writing when the period begins.