It is also one of the best ways to ensure compliance with a pre-emption clause. Finally, it is important to know that, in accordance with article 1397 of the Civil Code of Québec, a sale contrary to a right of pre-emption is nevertheless valid and can be executed against the holder of such a right (the franchisor), subject to the right to claim damages (or, if the contract contains a penalty clause, B. to assert the agreed sentence). As soon as a sale has been made in violation of its right of pre-emption, the franchisor can no longer request the cancellation of the pre-emption. There are, however, some exceptions to this principle. However, under article 1623 of the Civil Code of Québec, the amount of a contractual penalty can always be reduced (but not increased) by a court. In addition, over time or due to changes in the market, it may turn out that a penalty that should have a deterrent effect becomes so insignificant that it is nothing more than an ness tax that a buyer is willing to pay with bad intentions to circumvent a right of pre-emption. The new FASB standards for the realization of franchise turnover delayed An important topic that must be addressed in any franchise agreement is the inclusion of the franchisor`s right of pre-emption. This is a principle that is used in many types of business agreements. However, with respect to franchising, this generally means that the party acting as a franchisee has the right to purchase the franchisee`s business if it decides to transfer the transaction or if the contract ends as planned. 5) Make sure your sale is not declined. Let`s say you`ve completed steps 1-4 and submitted a $3,000,000 cash offer for your $1,000,000 units. It is unlikely that your franchisor will name a result of 2,000,000 $US just to exercise the rights of pre-emption.
But your franchisor has another gun in their pocket – they can refuse the sale as a whole. Almost all franchise agreements allow the franchisor to take into account the financial status of the buyer and refuse the sale if the financial status of the buyer was not sufficient to cover the debts contracted to pay the franchise(s). Some franchise agreements expressly allow the franchisor to refuse a sale at an excessive price. Don`t be confused – ROFR and the right to allow or deny the sale are not the same thing. There are two different “arrows” in the franchisee`s quiver. I have also encountered other situations where all or substantially all of the consideration offered was payable on request, up to a loan note. . .