Is a Buona franchisee allowed to grant a security interest in the Franchise Agreement itself?

According to Buona's 2025 Franchise Disclosure Document, a franchisee is explicitly prohibited from granting a security interest in the Franchise Agreement or the franchise granted under it. Specifically, the FDD states, "Under no circumstances that Franchisee grant a security interest in this Agreement or the franchise granted hereunder." This restriction means that a Buona franchisee cannot use the Franchise Agreement itself as collateral to secure financing or other obligations.

This restriction protects Buona by preventing third-party lenders from potentially gaining control over the franchise rights in the event of a franchisee's default. If a franchisee were to default on a loan secured by the Franchise Agreement, the lender could theoretically try to take over the franchise, which could introduce an unapproved operator into the Buona system. This clause ensures that Buona maintains control over who operates its franchises and protects the integrity of its brand and system.

While franchisees cannot grant a security interest in the Franchise Agreement itself, they may be able to grant security interests in other assets with Buona's prior written consent. However, any such security agreement must include provisions that protect Buona's interests, such as requiring the secured party to provide Buona with notice of default and an opportunity to cure the default, or allowing Buona to step in as the obligor or purchase the secured party's rights. These conditions ensure that Buona has the ability to maintain control over the franchise and protect its brand even if a franchisee encounters financial difficulties.