Can a 7 Brew franchisee grant a security interest in the franchise?
7_Brew Franchise · 2025 FDDAnswer from 2025 FDD Document
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- (7) pledge of this Agreement (to someone other than us) or of an ownership interest in you or your owners as security or collateral, foreclosure upon or attachment or seizure of the Store (including its physical structure), or your transfer, surrender, or loss of the Store's possession, control, or management.
You may grant a security interest (including a purchase-money security interest) in the Store's assets (including its physical structure but not including this Agreement or the franchise rights) to a lender that finances your acquisition, development, and/or operation of the Store without having to obtain our prior written approval as long as you give us ten (10) days' prior written notice. This Agreement and the franchise rights granted to you by this Agreement may not be pledged as collateral or be the subject of a security interest, lien, levy, attachment, or execution by your creditors or any financial institution.
Source: Item 22 — CONTRACTS (FDD pages 82–83)
What This Means (2025 FDD)
According to 7 Brew's 2025 Franchise Disclosure Document, a franchisee can grant a security interest in the store's assets to a lender without prior written approval from 7 Brew, provided the loan finances the acquisition, development, or operation of the store. The franchisee must give 7 Brew ten days' prior written notice before granting the security interest. The term "Store" includes all assets of the 7 Brew store, including its physical structure, revenue, and income.
However, the agreement explicitly states that the franchise agreement itself and the franchise rights granted within it cannot be pledged as collateral. They cannot be subject to a security interest, lien, levy, attachment, or execution by the franchisee's creditors or any financial institution. This restriction protects 7 Brew's interest in maintaining control over who operates a franchise under its brand.
This arrangement is fairly typical in franchising. Franchisors want to ensure that the franchise rights remain with the approved franchisee and are not easily transferred to a third party through a security interest. This clause aims to prevent a lender from potentially taking over the franchise if the franchisee defaults on a loan. The franchisee retains the ability to finance their business using the store's assets as collateral, offering flexibility in securing funding while protecting the franchisor's brand and franchise system.