If Alloy consents to a franchisee retaining a security interest in an installment sale, who is obligated to guarantee performance under the Alloy Franchise Agreement?
Alloy Franchise · 2025 FDDAnswer from 2025 FDD Document
The application must indicate whether you or an Owner proposes to retain a security interest in the property to be transferred.
No security interest may be retained or created, however, without our prior written consent and except upon conditions acceptable to us.
Any agreement used in connection with a transfer will be subject to our prior written approval, which approval will not be withheld unreasonably.
You immediately must notify us of any proposed transfer and must submit promptly to us the application for consent to transfer and any other required documents and information.
Any attempted transfer by you without our prior written consent or otherwise not in compliance with the terms of this Agreement will be void, your interest in this Agreement will be voluntarily abandoned, and it will provide us with the right to elect either to deem you in default and terminate this Agreement or to collect from you and the guarantors a transfer fee equal to two times the transfer fee provided for in subparagraph 11.C.
Source: Item 23 — RECEIPTS (FDD pages 69–245)
What This Means (2025 FDD)
The 2025 Alloy FDD discusses security interests in the context of franchise transfers, but it does not specify who would be obligated to guarantee performance under the Alloy Franchise Agreement if Alloy consents to a franchisee retaining a security interest in an installment sale. Item 23 outlines the conditions under which Alloy might consent to a franchisee retaining a security interest in the property to be transferred. It states that no security interest may be retained or created without Alloy's prior written consent and except upon conditions acceptable to them.
While the FDD mentions that any agreement used in connection with a transfer will be subject to Alloy's prior written approval, it does not detail the specifics of who would guarantee performance in such a scenario. The document emphasizes that any attempted transfer without Alloy's prior written consent or not in compliance with the terms of the agreement will be void and may result in penalties, including a transfer fee. However, it remains silent on the guarantor's identity when a security interest is involved.
Prospective Alloy franchisees should seek clarification from Alloy regarding the specific conditions and requirements related to retaining a security interest in an installment sale. Specifically, they should ask who would be required to guarantee the franchisee's performance under the Franchise Agreement in such a situation. This information is crucial for understanding the full scope of obligations and potential liabilities associated with franchise transfers involving security interests.