One of the clauses that can be included in a franchise agreement is a pre-emption clause, also known as a right of first refusal.
But what does this actually mean ?
Acording to Article 1123 of the French Civil Code, it is a clause by which one party – in this case, the franchisee – unterakes to give the franchisor priority in dealing with them, for example, if the franchisee intends to sell their business.
However, the inclusion of such a clause in a franchise agreement must meet certain legal requirements. The Paris Court of Appeal, in a decision dated 7 october 2016 (No. 14/23965), reminded that this right granted to the franchisor :
- must be justified,
- must not have anti-competitive effects
- and must not be abusive.
In the case of non-compliance with the right of the pre-emption, the franchisor may :
- Obtain damages to compensate fot its loss.
This loss may result from the loss of an opportunity to operate the business, to expand the networ, or from damage to the brand’s representation or devaluation – as emphasised by the Commercial Chamber of the French Court of Cassation in a ruling dated 20 september 2016 (No. 15-10.963).
- Request the cancellation of the sale of their substitution in the buyer’s rights, provided that the third-party purchaser was aware of the pre-emption agreement and the franchisor’s intention to exercice it, as held by the Paris Court of Appeal in the case mentionned above.
Pursuant to Article 1240 of the Civil Code, the franchisor may also bring a tort claim against the third-party purchaser if he can prove a causal link between the third party’s fault and the damage suffered. Such fault may be characterised, in particular, in the event of unfair competition.
For more information in clauses that may be included in a franchise agreement :
- On the exclusivity clause
- On the non-competitition clause