What is the purpose of the Collateral Assignment of Lease for a Browns Chicken franchise?
Browns_Chicken Franchise · 2025 FDDAnswer from 2025 FDD Document
Franchisee shall execute a Collateral Assignment of Lease, attached hereto as Rider B, by which Franchisee assigns to Brown all of his right, title and interest as tenant under the lease for the Store premises. The assignment is for collateral purposes and may be exercised only upon a default by Franchisee under his lease or under this Agreement. Brown's approval of Franchisee's lease is conditioned on receipt of the signed Collateral Assignment.
Source: Item 22 — Contracts (FDD page 43)
What This Means (2025 FDD)
According to Browns Chicken's 2025 Franchise Disclosure Document, the Collateral Assignment of Lease serves as a security measure for Browns Chicken, LLC. When a franchisee leases a location for their Browns Chicken store, they must execute a Collateral Assignment of Lease, which assigns all rights, title, and interest in the lease to Browns Chicken. However, this assignment is specifically for collateral purposes.
This means Browns Chicken can only exercise its rights under the assignment if the franchisee defaults on their lease obligations or under the Franchise Agreement itself. If a default occurs, Browns Chicken has the right to take possession of the premises. Browns Chicken's approval of a franchisee's lease is dependent on receiving this signed Collateral Assignment, highlighting its importance in the franchising process.
Furthermore, the lease agreement must contain provisions that protect Browns Chicken's interests. The landlord must notify Browns Chicken of any franchisee default, giving Browns Chicken the option to cure the default and take over the lease. The lease must also stipulate that the premises can only be used as a Browns Chicken store and can be assigned to Browns Chicken if the Franchise Agreement is terminated. This ensures Browns Chicken can maintain control over the location and brand consistency even if the franchisee fails.
In the event the franchisee owns the land and/or building in which the Browns Chicken store is located, the franchisee grants Browns Chicken an option to lease the premises on a triple-net basis for the remaining term of the Franchise Agreement at a reasonable commercial rental rate determined by a licensed commercial real estate broker selected by Browns Chicken. This ensures that Browns Chicken has control over the location of the store, even if the franchisee defaults or the franchise agreement is terminated.