franchise-rofr

# 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

| Element | Specification |
|---|---|
| Triggering event | Bona fide, arm's-length third-party offer |
| Covered transactions | Asset sale, equity transfer, merger, consolidation, change of control |
| "Bona fide offer" | Written, from unrelated party, genuine intent to close, not structured to circumvent ROFR |
| Control threshold | Define "controlling interest" (e.g., >50% voting/economic interest) |
| Cumulative transfers | Series of related transactions resulting in change of control |

### 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

| Requirement | Detail |
|---|---|
| Trigger | Receipt of qualifying third-party offer |
| Timing | Written notice within [5–10] business days |
| Contents | Complete offer copy, purchaser identity, price, payment terms, financing, closing timeline, all material terms |
| Delivery | Per Franchise Agreement notice provisions (certified mail + email) |
| Incomplete notice | Franchisor may reject; exercise period tolled until complete |
| Anti-circumvention | Transactions structured to avoid ROFR are void and constitute default |

### 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