Does Baya Bar have to provide a reason if it chooses not to exercise its right of first refusal?
Baya_Bar Franchise · 2024 FDDAnswer from 2024 FDD Document
16.6 Franchisor 's Right of First Refusal.
16.6.1 If Franchisee wishes to transfer all or part of its interest in the Franchised Business or this Agreement or if a Principal wishes to transfer any ownership interest in Franchisee, pursuant to any bona fide offer to purchase such interest, then Franchisee or such Principal shall promptly notify Franchisor in writing of each such offer, and shall provide such information and documentation relating to the offer as Franchisor may require.
16.6.2 Franchisor has the right, exercisable by written notice to Franchisee within thirty (30) days after receipt of written notification and copies of all documentation required by Franchisor describing such offer, to buy the interest in this Agreement and the Franchised Business or the Principal's interest in Franchisee for the price and on the terms and conditions contained in the offer, subject to Section 16.6.3.
16.6.3 Franchisee further agrees, in the event Franchisor exercises its right of first refusal, notwithstanding anything to the contrary contained in the offer, that (i) Franchisor may substitute cash for any other form of consideration contained in the offer; (ii) at Franchisor 's option, Franchisor may pay the entire purchase price at closing; (iii) Franchisor 's credit will be deemed equal to the credit of any proposed transferee; (vi) Franchisor will have at least sixty (60) days to close the purchase; and (v) Franchisor will be entitled to receive from the Franchisee all customary representations and warranties given by a seller of the assets of a business or equity interest in an entity, as applicable.
16.6.4 If Franchisor does not exercise its right to buy within thirty (30) days, Franchisee may thereafter transfer the interest to the transferee on terms no more favorable than those disclosed to Franchisor, provided that such transfer is subject to Franchisor's prior written approval pursuant to Section 16.3 hereof.
Source: Item 22 — CONTRACTS (FDD page 56)
What This Means (2024 FDD)
According to Baya Bar's 2024 Franchise Disclosure Document, if a franchisee wishes to transfer their interest in the franchised business or the franchise agreement due to a legitimate purchase offer, they must inform Baya Bar in writing. Baya Bar then has the option to exercise its right of first refusal, allowing them to purchase the franchisee's interest at the same price and terms as the offer.
Baya Bar has 30 days after receiving written notification and all required documentation to decide whether to exercise this right. However, the FDD does not state that Baya Bar is obligated to provide a reason if it chooses not to exercise its right of first refusal. If Baya Bar does not exercise its right within this 30-day period, the franchisee is then permitted to transfer their interest to the original transferee, provided the terms are no more favorable than those initially disclosed to Baya Bar and that Baya Bar provides prior written approval for the transfer.
This clause protects Baya Bar's interests by allowing them to maintain control over who becomes a franchisee and ensuring that any transfer aligns with their strategic goals. For a prospective franchisee, this means that even with a valid offer, the sale of their franchise is not guaranteed if Baya Bar decides to step in. It is important for franchisees to understand this right of first refusal and its implications for their exit strategy.