Is a 7 Brew franchisee permitted to pledge the Franchise Agreement to someone other than 7 Brew as security or collateral?
7_Brew Franchise · 2025 FDDAnswer from 2025 FDD Document
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. Any security interest that may be created in this Agreement by virtue of Section 9-408 of the Uniform Commercial Code is limited as described in Section 9-408(d) of the Uniform Commercial Code.
Source: Item 22 — CONTRACTS (FDD pages 82–83)
What This Means (2025 FDD)
According to 7 Brew's 2025 Franchise Disclosure Document, a franchisee is restricted from using the Franchise Agreement as collateral. While a franchisee can obtain financing to acquire, develop, and operate their 7 Brew store and can grant a security interest in the store's assets (excluding the Franchise Agreement itself) to a lender, the agreement and the associated franchise rights cannot be pledged as collateral.
This restriction means that a 7 Brew franchisee cannot use the value of the franchise agreement itself to secure a loan or other financial obligation. This is a fairly standard practice in franchising, as franchisors typically want to maintain control over who operates their franchises and prevent the franchise rights from being transferred to an undesirable party through a foreclosure or similar action.
The FDD specifies that any security interest created in the agreement by virtue of Section 9-408 of the Uniform Commercial Code is limited as described in Section 9-408(d) of the Uniform Commercial Code. This clause likely refers to situations where a general security agreement might inadvertently cover the franchise agreement, and it clarifies that 7 Brew's restrictions take precedence.