First Refusal Agreement Template for Canada

A First Refusal Agreement under Canadian law is a legally binding document that grants a specific party the right to enter into a business transaction with the owner of an asset before the owner can enter into that transaction with a third party. This agreement, governed by provincial contract laws and the federal Competition Act, establishes the terms, conditions, and procedures for exercising the right of first refusal. It includes specific provisions for notice requirements, response timeframes, and pricing mechanisms, while accounting for variations in provincial requirements, particularly the distinct civil law system in Quebec versus common law in other provinces.

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What is a First Refusal Agreement?

The First Refusal Agreement is a crucial legal instrument in Canadian business and property transactions, designed to protect the interests of parties who wish to secure priority rights in future transactions. This document is commonly used in real estate deals, share transfers, asset sales, and commercial leasing arrangements. It must comply with both federal legislation (such as the Competition Act) and provincial laws, including the Civil Code of Quebec for agreements in that province and common law principles in other provinces. The agreement typically outlines trigger events, notice requirements, exercise procedures, and pricing mechanisms, providing a clear framework for when and how the right can be exercised. It's particularly valuable in situations involving long-term business relationships, family businesses, or strategic partnerships where maintaining control over ownership or occupancy is crucial.

What sections should be included in a First Refusal Agreement?

1. Parties: Identification of the grantor (party giving the right) and grantee (party receiving the right)

2. Background: Context of the agreement, relationship between parties, and basic premise for the right of first refusal

3. Definitions: Key terms used throughout the agreement, including 'Offer', 'Notice Period', 'Subject Matter', 'Trigger Event'

4. Grant of Right: Clear statement of the right of first refusal being granted and its scope

5. Subject Matter: Detailed description of the property, shares, or assets subject to the right

6. Trigger Events: Specific circumstances that activate the right of first refusal

7. Notice Requirements: Process for notifying the grantee of trigger events and third-party offers

8. Exercise Procedure: Steps and timeframes for exercising the right of first refusal

9. Purchase Price and Payment Terms: How the purchase price will be determined and payment conditions

10. Term and Termination: Duration of the agreement and circumstances for termination

11. General Provisions: Standard clauses including governing law, notices, amendments, and assignment

What sections are optional to include in a First Refusal Agreement?

1. Valuation Mechanism: Used when the agreement requires specific methods for determining fair market value

2. Right of Inspection: Include when the subject matter requires physical inspection before exercise of rights

3. Confidentiality: Include when sensitive business information will be shared

4. Tag-Along Rights: Include for corporate share transactions to protect minority shareholders

5. Financing Conditions: Include when the grantee may require time to secure financing

6. Registration Rights: Include for real estate transactions where the right should be registered on title

7. Competition Law Compliance: Include when the transaction size could trigger competition law concerns

8. Tax Provisions: Include when there are specific tax implications that need to be addressed

What schedules should be included in a First Refusal Agreement?

1. Description of Subject Matter: Detailed technical description of property/assets/shares subject to the agreement

2. Form of Notice: Template for notification of trigger events and third-party offers

3. Exercise Notice: Template for exercising the right of first refusal

4. Valuation Procedures: Detailed procedures for determining fair market value if applicable

5. Permitted Encumbrances: List of acceptable encumbrances on the subject matter

6. Required Consents: List of third-party consents required for transfer

Authors

Alex Denne

Head of Growth (Open Source Law) @ Genie AI | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents

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Land Lease With Option To Buy

A Canadian-law governed agreement combining land lease terms with a future purchase option, addressing both temporary use and potential ownership transfer.

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What is a First Refusal Agreement?

What sections should be included in a First Refusal Agreement?

What sections are optional to include in a First Refusal Agreement?

What schedules should be included in a First Refusal Agreement?

Authors

Alex Denne

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