Under what condition may Chicken Guy condition its approval of a security interest granted 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 may condition its approval of a security interest granted by a developer if the secured party agrees in writing that Chicken Guy has the right to purchase the secured party's rights if the developer defaults on the security interest agreement. Chicken Guy has the option, but not the obligation, to purchase these rights upon payment of all sums due to the secured party.
This condition allows Chicken Guy to maintain control over its franchised restaurants even if a developer faces financial difficulties and defaults on their obligations to a secured party. By having the option to purchase the secured party's rights, Chicken Guy can prevent the restaurant from falling into the hands of an undesirable third party who may not be aligned with the brand's standards and vision.
For a prospective Chicken Guy developer, this means that obtaining financing for their business may require the lender to enter into an agreement with Chicken Guy. This agreement would give Chicken Guy the option to buy out the lender's position in case of a default. This condition is intended to protect Chicken Guy's interests and ensure the continued operation of the franchise under its brand standards.
This type of condition is not uncommon in franchising, as franchisors often want to maintain control over their brand and protect it from potential damage caused by financially distressed franchisees or unapproved third parties. Franchisees should carefully review these types of provisions and discuss them with their legal and financial advisors to fully understand their implications.