Can Chicken Guy unreasonably withhold approval for a security interest granted by the Franchisee?
Chicken_Guy Franchise · 2025 FDDAnswer from 2025 FDD Document
- **H.
Grant of Security Interest.** Franchisee shall not grant any security interest in its business, the Franchised Restaurant, the Franchised Location or the assets used in the operation or development of the Franchised Restaurant without Chicken Guy's prior written approval, which will not be unreasonably withheld.
Chicken Guy's approval may be conditioned, on the written agreement by the secured party that, in the event of a default by Franchisee 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 22 — CONTRACTS (FDD page 50)
What This Means (2025 FDD)
According to Chicken Guy's 2025 Franchise Disclosure Document, franchisees are not allowed to grant any security interest in their business, the franchised restaurant, its location, or the assets used for operation or development without prior written approval from Chicken Guy. However, Chicken Guy cannot unreasonably withhold this approval.
Chicken Guy's approval for a security interest can be conditional. Specifically, Chicken Guy may require a written agreement from the secured party. This agreement would stipulate that if the franchisee defaults on any agreement related to the security interest, Chicken Guy has the right, but not the obligation, to purchase the rights of the secured party by paying all sums due to them.
This provision protects Chicken Guy's interest in maintaining control over the franchise and ensuring its continued operation, even if the franchisee encounters financial difficulties. It also provides Chicken Guy with an option to take over the secured party's rights, potentially avoiding disruption to the business. For a prospective franchisee, this means understanding that any financing arrangements that involve a security interest will be subject to Chicken Guy's approval and potential intervention.