Does the security interest granted to Cilantro Taco Grill include future liabilities and obligations?
Cilantro_Taco_Grill Franchise · 2024 FDDAnswer from 2024 FDD Document
Any obligation of Franchisee or any Principal that contemplates performance of such obligation after termination or expiration of this Agreement or the transfer of any interest of Franchisee or any Principal therein shall be deemed to survive such termination, expiration or transfer.
- 21.13 Security Interest.
Franchisee grants to Franchisor a security interest ("Security Interest") in all of the furniture, fixtures, equipment, signage, and realty (including Franchisee's interests under all real property and personal property leases) of the Restaurant, together with all similar property now owned or hereafter acquired, additions, substitutions, replacements, proceeds, and products thereof, wherever located, used in connection with the Restaurant.
All items in which a security interest is granted are referred to as the "Collateral".
- 21.13.1 The Security Interest is to secure payment of the following (the "Indebtedness"): all amounts due under this Agreement or otherwise by Franchisee; all sums which Franchisor may, at its option, expend or advance for the maintenance, preservation, and protection of the Collateral, including, without limitation, payment of rent, taxes, levies, assessments, insurance premiums, and discharge of liens, together with interest, or any other property given as security for payment of the Indebtedness; all expenses, including reasonable attorneys' fees, which Franchisor incurs in connection with collecting any or all Indebtedness secured hereby or in enforcing or protecting its rights under the Security Interest and this Agreement; and all other present or future, direct or indirect, absolute or contingent, liabilities, obligations, and indebtedness of Franchisee to Franchisor or third parties under this Agreement, however created, and specifically including all or part of any renewal or extension of this Agreement, whether or not Franchisee executes any extension agreement or renewal instruments.
Source: Item 23 — RECEIPT (FDD pages 52–208)
What This Means (2024 FDD)
According to Cilantro Taco Grill's 2024 Franchise Disclosure Document, the security interest granted to Cilantro Taco Grill by the franchisee does include future liabilities and obligations. The franchisee grants Cilantro Taco Grill a security interest in all furniture, fixtures, equipment, signage, and realty of the restaurant, including any after-acquired property. This security interest secures the payment of all amounts due under the Franchise Agreement, sums expended by Cilantro Taco Grill for the collateral's maintenance, and all present or future liabilities and obligations of the franchisee to Cilantro Taco Grill. This encompasses direct or indirect, absolute or contingent liabilities. It also includes any renewal or extension of the agreement, regardless of whether the franchisee executes any extension agreement or renewal instruments.
This means that Cilantro Taco Grill has a claim on the franchisee's restaurant assets not only for current debts but also for any future debts or obligations that may arise during the term of the agreement, including renewals or extensions. This is a broad security interest that protects Cilantro Taco Grill's financial interests in the franchise.
For a prospective franchisee, this implies a significant financial obligation. If the franchisee defaults on any payment or incurs any future liabilities to Cilantro Taco Grill, the franchisor can seize the restaurant's assets to cover the debt. Franchisees should carefully consider the potential financial risks and obligations before entering into the agreement, as the security interest extends to all present and future liabilities.