In many cases, a franchisor may wish to purchase a business branch (ie, the point of sale) that was previously managed by a franchisee under a franchise agreement.
Franchise agreements often provide for a pre-emption right or a right of first refusal in the franchisor’s favour. Alternatively, an agreement may give the franchisor an option right, to be exercised on expiry of the agreement. A provision of this kind must stipulate in detail the terms and conditions on which the option may be exercised, including the purchase price. It is advisable for franchisors to insert the relevant provisions into their franchise agreements when they are executed, as this will give them the opportunity to purchase the franchisee’s business and preserve the goodwill in, and the integrity of, the franchise network.
For a franchisor, acquiring a business that was previously managed by its franchisee may be a particularly advantageous move. Full post.
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