What is the Devon Creek Franchisor's Right of First Refusal in relation to Franchisee transfers?
Devon_Creek 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 ten (10) 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;
Source: Item 22 — CONTRACTS (FDD page 45)
What This Means (2024 FDD)
According to the 2024 Devon Creek Franchise Disclosure Document, Devon Creek has a right of first refusal if a franchisee wishes to transfer their interest in the franchised business or the Franchise Agreement, or if a principal wants to transfer their ownership interest in the franchisee entity.
If a franchisee or principal receives a legitimate offer to purchase their interest, they must promptly inform Devon Creek in writing and provide all necessary information and documentation about the offer that Devon Creek requires. Devon Creek then has ten days after receiving this notification and documentation to exercise its right to buy the interest under the same terms and conditions as the offer.
However, Devon Creek has some latitude even if it matches the offer. Devon Creek can substitute cash for any other form of consideration, pay the entire purchase price at closing, and have its credit deemed equal to any proposed transferee's credit, regardless of what the offer states. This clause gives Devon Creek significant control over who becomes a new franchisee within its system.