Right of first refusal

Clause by which the franchisee contractually undertakes to offer the possibility to the franchisor to replace the purchaser to whom the franchisee wishes his business.

After the notification made by the franchisee to the franchisor, according to the forms provided for in the contract, of its wish for the offer it has received to sell its assets ( nature of the transaction, price, etc.), the franchisor will have the option of acquiring the said assets, at the price conditions notified by the franchisee, or, if the contract so provides, at the price defined by an expert.

Such clauses thus allow the franchisor to preserve the perimeter of its network, by deciding to keep within the network any point of sale it wishes.

Although the validity of these clauses has long been accepted by case law, the seller must nevertheless hold rights over the asset concerned, on pain of ineffectiveness of the clause.

Thus, if the right of pre-emption is granted by the sole franchisee, a legal person, it may relate to the right to the lease or the goodwill held by the franchisee, but it may not relate to the shares of the share capital of the franchisee, which are the property of the natural person shareholder who holds control of the franchisee company. The right of pre-emption must then be granted by the natural person partner to the franchisor for the clause to be effective.

You will find here an article published in LSA on the right of preference and pre-emption.

In addition, the clauses containing a right of pre-emption are to be interpreted strictly, so that the transaction concerned must be included in the scope of the clause in order for the franchisor to validly exercise its right.

It is therefore necessary to ensure a precise wording, making it possible to enforce these clauses in all situations, both with regard to the partners of the franchisee and the franchisee.

Finally, you will find here a decision of the Lyon Court of Appeal on the pre-emption clauses in a franchise contract: the wording must be precise.

The sanction for the violation of the preference clause is the termination of the franchise agreement at the exclusive fault of the franchisee, accompanied by damages to compensate for the damage suffered by the franchisor, consisting of the loss of opportunity to profit from these assets and to develop its network (CA Paris, November 14, 2012,  RG No. 10/15481).

The liability of the third party purchaser who has fraudulently acquired the rights of the franchisor may also be incurred on the basis of tort (CA Versailles, February 14, 2012, RG No. 10/08678).

The substitution of the purchaser for the franchisor may also be pronounced if it is demonstrated that the purchaser had knowledge of the preferential right and the intention of its creditor to invoke it (CA Paris, June 13, 2012,  RG No. 10/25262).  The nullity of the sale may also be declared, provided that these two conditions are met.