Franchise Right of First Refusal: It Can Take Your Buyer

You find a buyer. You agree a price. Then the franchisor takes the deal.

That is what a right of first refusal does, and all four Franchise Disclosure Documents we have read in full reserve one.

The clause, in three brands’ own words

Smoothie King (Item 17, Section 15.4): “Smoothie King can match any offer for the Unit.”

Freshii (Item 17, area development agreement table, Section 11G): “We may match any offer for your business or controlling ownership interest in you.” A single-unit franchisee is governed instead by its franchise agreement table at Section 13G, which reads: “We may match any offer for your Restaurant or Operating Assets or controlling ownership interest in you.”

Kung Fu Tea (Item 17, Section 4.3): “We can match any offer for your business.”

F45 Training (Item 17, Section 14.E): “On 30 days written notice, we have the option to purchase an interest being transferred on the same terms and conditions offered by a third party.”

Four different brands, four different lawyers, one provision in substance. It is a standard clause rather than an unusual one, and that is exactly why it is worth understanding before you need it.

Read the fourth quote against the first three, though, because it contains something they do not.

What it is not

It is not the approval requirement. Those are separate provisions and they do different work.

Approval means the franchisor assesses your buyer and can refuse them: Smoothie King’s conditions run to nine separate requirements, covering the buyer’s qualifications, your compliance, the transfer fee, a personal guaranty, a release, training and a remodel.

A right of first refusal means something else entirely: your buyer is fine, and the franchisor takes the deal anyway, on the terms your buyer set. A sale can pass every approval condition and still be bought out from under the buyer.

It is also not the same as a franchisee’s own right of first refusal. Freshii’s Item 12 states that the franchisee has “no options, rights of first refusal or similar rights for other areas.” That is about whether you get first call on expanding into neighbouring territory. It is unrelated to the franchisor’s right to match an offer for your existing unit, and reading one for the other is an easy mistake.

Why it matters more to your buyer than to you

The seller mostly loses time. The buyer can lose money.

A serious buyer spends real sums before closing: legal review, accounting, lease and landlord work, sometimes a franchisor application fee and training commitments. If the franchisor can appear at the end and take the deal, that spending is at risk in a way the buyer will price in or protect against.

Practically, that shows up as buyers who want the refusal window resolved early, who slow their spending until it is, or who discount for the uncertainty. How often franchisors actually exercise the right is not disclosed in any of the four documents, which is itself why the friction exists: neither side can price a risk nobody publishes.

The other clause in the same table, and almost nobody reads it

Item 17 carries a second acquisition right one row below the refusal right, and the two are routinely confused. Where the refusal right is row n, this is row o: the franchisor’s option to purchase your business.

All four documents grant it at the single-unit level, and the trigger is completely different.

Smoothie King (Item 17, Sections 16.2 and 16.3): “Smoothie King may exercise its option to purchase your assets at fair market value within 30 days after the Franchise Agreement expires or is terminated. Also, Smoothie King may purchase any proprietary product you may have at fair market value.”

Freshii (Item 17, franchise agreement table, Section 16E): “We may buy Restaurant’s assets at fair market value after Franchise Agreement is terminated or expires.”

Kung Fu Tea (Item 17, Section 5.4): “On termination or nonrenewal, we may purchase the assets of your business at their fair market value.”

F45 Training (Item 17, Sections 18.A(8) and (9) and 18.B): “Upon termination or expiration, we have the option to purchase your advertising materials bearing the Marks at your cost. We have the option to purchase the furnishings, equipment, signs, fixtures, supplies, materials and other assets, at fair market value, and, if you own the land where the Studio is located, we have the option to lease the land (and any building on the land used for the operation of the Studio), for fair market value. We have the option to have the lease for the premises of the Studio assigned to us.”

The distinction, in one line. A right of first refusal is triggered by your proposed sale and prices off your buyer’s offer. An option to purchase is triggered by the agreement ending and prices at a standard nobody in the deal negotiated. No row n in any of these documents mentions termination or expiration. No row o mentions a third party’s offer.

Four points hold across all four documents:

• The trigger is always the end of the agreement, never a sale. Kung Fu Tea is the only one naming nonrenewal as a distinct trigger alongside termination.
• The price standard is fair market value in all four. F45 runs two standards in one row, taking advertising materials “at your cost” and everything else at fair market value.
• It reaches assets rather than the business. Equipment, fixtures, signs, supplies. F45’s reaches furthest of the four: the Studio’s premises lease can be assigned to the franchisor, and where the franchisee owns the land, the land and building come into play too.
• Only Smoothie King states a time limit in Item 17, at 30 days after expiry or termination. That is the mirror image of the refusal right, where F45 is the one that states a period and Smoothie King does not.

Two of the franchisors keep the refusal right at multi-unit level but drop the option to purchase there. Smoothie King’s area development table gives the refusal right at Article 8.4 and marks the purchase option “Not Applicable”; Kung Fu Tea’s multi-unit agreement does the same. Freshii’s multi-unit site selection agreement table disclaims both, stating “We do not have this right” against each.

Why this matters at a different moment than the refusal right. The refusal right is a risk while you are selling, and a seller who loses the buyer at least still receives the buyer’s price. The option to purchase is a risk at the far end of the term, when there is no competing offer to test the number against. A franchisee whose agreement is terminated, or who simply decides not to renew, can find the franchisor entitled to buy the physical business at an appraised figure. Ask a franchise attorney how fair market value is determined under your agreement, and who appoints the appraiser, because that mechanic is not in Item 17 either.

What to do about it

Find the exercise period and put it in writing. Section number, day count, and what starts the clock. It is normally triggered by delivering a bona fide offer to the franchisor, so the notice mechanics matter as much as the number.

Ask how often it has been exercised. A franchisor that has never used it in a decade is a different proposition from one that routinely takes back units in strong markets, and it is a fair question to put directly.

Sequence your buyer’s spending around it. If the window is genuinely long, a buyer will want to know that before commissioning a survey or a lease assignment.

Read it alongside the approval conditions, because both must clear. Our transfer fee and conditions breakdown sets out what else has to happen, including the requirement in at least one brand that the buyer signs a new agreement and remodels.

Get advice on whether it is negotiable. Whether this one is worth pushing on is a judgement for a franchise attorney who has read your agreement, not something a website can answer.

Questions to ask before you list the business

• What section of my agreement contains the right of first refusal, and what does it say verbatim?
• How many days does the franchisor have to exercise it, and what starts the clock?
• What form of notice do I have to give, and does a letter of intent trigger it or only a signed agreement?
• Has the franchisor exercised this right in the last three years, and how often?
• Does it apply to a transfer to a family member, or to an existing franchisee?
• If the franchisor matches, what are the payment terms, and are they the same as my buyer’s?
• Does it apply to a transfer of a minority ownership interest, or only to control?
• Does my agreement also give the franchisor an option to purchase when the term ends or is terminated?
• If it does, what does that option cover: equipment, the premises lease, the land?
• How is fair market value determined under that option, and who appoints the appraiser?
• Which Item 17 table applies to the agreement I actually signed, if the brand prints more than one?
• Will a franchise attorney review the transfer and refusal provisions with me before I market the business?