What rights does Alloy have if a franchisee defaults on a secured loan?
Alloy Franchise · 2025 FDDAnswer from 2025 FDD Document
of first refusal provided for in subparagraph 11.F must be made by submission of our form of application for consent to transfer, which must be accompanied by the documents we request and other required information. 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 transfe
Source: Item 23 — RECEIPTS (FDD pages 69–245)
What This Means (2025 FDD)
Based on the 2025 FDD, Alloy has certain rights regarding security interests in the context of franchise transfers. Specifically, a franchisee cannot retain or create a security interest without Alloy's prior written consent, and this consent is subject to conditions that Alloy finds acceptable.
If a franchisee proposes to transfer their franchise, the application for transfer must indicate whether the franchisee or an owner intends to retain a security interest in the property being transferred. Alloy's consent is required for any such security interest.
If a franchisee attempts to transfer the franchise without Alloy's prior written consent or does not comply with the terms of the franchise agreement, the attempted transfer will be void. In such a case, the franchisee's interest in the agreement will be considered voluntarily abandoned, and Alloy has the right to either deem the franchisee in default and terminate the agreement or collect a transfer fee equal to two times the standard transfer fee, which is normally $10,000.
These stipulations ensure that Alloy maintains control over the financial structure of its franchises and can protect its interests in the event of a transfer where a security interest is involved. A prospective franchisee should discuss with Alloy the conditions under which a security interest might be approved, as well as the implications of defaulting on a secured loan, to fully understand their obligations and potential risks.