Does Chicken Guy have the obligation to purchase the rights of the secured party in the event of a default by a Chicken Guy developer?
Chicken_Guy Franchise · 2025 FDDAnswer from 2025 FDD Document
- H. Grant of Security Interest. Developer shall not grant any security interest in its business or in any Franchised Restaurant or the assets used in the operation or development of any Franchised Restaurant without Chicken Guy's prior written approval, which will not be unreasonably withheld. Chicken Guy's approval may be conditioned, in its reasonable business discretion, on the written agreement by the secured party that, in the event of a default by Developer under any agreement related to the security interest, Chicken Guy shall have the right and option (but not the obligation) to purchase the rights of the secured party upon payment of all sums then due to the secured party.
Source: Item 23 — RECEIPTS (FDD pages 50–286)
What This Means (2025 FDD)
According to Chicken Guy's 2025 Franchise Disclosure Document, Chicken Guy does not have the obligation to purchase the rights of the secured party in the event of a default by the developer. However, Chicken Guy's approval of a security interest may be conditional. Chicken Guy may require a written agreement by the secured party that, if the developer defaults, Chicken Guy has the right and option to purchase the secured party's rights upon payment of all sums due to the secured party. This means that while Chicken Guy isn't obligated to step in, they have the option to do so to maintain control over the franchise and its assets.
This condition protects Chicken Guy by allowing them to prevent a potentially undesirable third party from gaining control of a franchise location in the event of a developer's financial difficulties. It also ensures that Chicken Guy has a say in who operates a Chicken Guy franchise, even when the developer faces financial challenges.
For a prospective franchisee, this means that while they can seek financing and grant security interests in their business, Chicken Guy has the right to approve these arrangements. Furthermore, Chicken Guy can negotiate terms that allow them to take over the secured party's rights if the franchisee defaults, which could impact the franchisee's ability to restructure their financing or sell the business to a third party without Chicken Guy's consent.