To what extent can an Aplus franchisee grant a security interest in the Franchise Agreement?
Aplus Franchise · 2024 FDDAnswer from 2024 FDD Document
- 8.7. Security Interest.
You may grant a security interest in this Agreement or the franchise represented by this Agreement only to the limited extent permitted by Section 9-408 of the Uniform Commercial Code.
Any such security interest may only attach to an interest in the proceeds of the operation of the Store and may not entitle or permit the secured party to take possession of or operate the Store or to transfer your interest in this Agreement or the franchise without Franchisor's consent.
Source: Item 22 — CONTRACTS (FDD page 68)
What This Means (2024 FDD)
According to Aplus's 2024 Franchise Disclosure Document, a franchisee's ability to grant a security interest in the Franchise Agreement is limited. Specifically, Aplus franchisees can only grant a security interest to the extent permitted by Section 9-408 of the Uniform Commercial Code. This means that the franchisee's rights to grant a security interest are governed by state law.
Furthermore, any security interest granted by the Aplus franchisee can only attach to the proceeds from operating the store. The security interest cannot allow the secured party to take possession of or operate the Aplus store. Additionally, the secured party cannot transfer the franchisee's interest in the Franchise Agreement without obtaining Aplus's consent.
In practical terms, this means an Aplus franchisee may be able to use the revenue generated by the business as collateral for a loan, but the lender cannot seize the store itself or transfer the franchise to someone else without Aplus's approval. This protects Aplus by ensuring they maintain control over who operates their branded locations and that the brand standards are upheld.