Right of first refusal
What it means
Rights of first refusal appear in two common places in franchising. Over resales, a franchise agreement may give the franchisor the right to buy the business itself, on the same terms as a genuine outside offer, before the franchisee can sell to that buyer. Over expansion, a strong existing franchisee may be granted the first opportunity to take up an adjoining territory or a new site before the franchisor offers it to anyone else.
The mechanism is 'match or release': when a bona fide offer arrives, the holder of the right is notified and has a set period to match it. If they match, they proceed on those terms; if they decline or let the period lapse, the franchisee is free to deal with the third party. The point is to give the right-holder priority without indefinitely blocking a legitimate transaction.
Because the right can affect how easily a franchisee can exit, it interacts with the Franchising Code's rules that a franchisor must not unreasonably withhold consent to a transfer and must act in good faith. A right of first refusal must be exercised on genuine terms and within the agreed timeframes, not used as a device to frustrate a sale.
In practice
If you are buying a franchise, check whether the franchisor holds a right of first refusal over future resales and how it works, because it can affect your eventual exit. If you are being offered expansion territory, understand whether your right is a true first refusal or merely a first-to-be-asked courtesy.
When selling, factor the franchisor's right of first refusal into your timeline: you generally must present a genuine offer, notify the franchisor, and wait out the matching period before completing with an outside buyer. Keep records showing the offer was bona fide.
A real example
A franchisee receives a genuine $150,000 offer for their outlet. Their agreement gives the franchisor a right of first refusal with a 21-day window. The franchisee notifies the franchisor, who decides not to match; the franchisee is then free to sell to the third party at $150,000, subject to the normal transfer-approval process.
Right of first refusal — FAQs
What does a right of first refusal do?
It lets the right-holder match a genuine third-party offer before the sale or grant can proceed to that third party. If they match, they take the deal; if they decline within the set period, you can proceed with the outside party.
Does the franchisor usually have a right of first refusal over my sale?
Many franchise agreements give the franchisor this right over resales. Check your agreement, because it affects how you sell and how long the process takes.
Can a right of first refusal be used to block my sale?
It must be exercised on genuine terms within the agreed timeframes. The Franchising Code requires franchisors to act in good faith and not unreasonably withhold consent to a transfer.
Is a right of first refusal the same as a right of last refusal?
They are similar priority rights. A right of first refusal matches an offer up front; a right of last refusal lets the holder match the best final offer after negotiations. The agreement defines which applies.
See the full franchise glossary, the Fee Index or our buyer guides.