Does the City Wide franchise agreement create a security?
City_Wide Franchise · 2025 FDDAnswer from 2025 FDD Document
about the potential benefits and risks of entering into this Agreement.
- 30.4 Franchisee acknowledges that Franchisee has had sufficient opportunity to consult with Franchisee's own attorneys, accountants and other advisors and that the attorneys for CITY WIDE have not advised or represented Franchisee with respect to this Agreement or the relationship created by this Agreement.
- 30.5 Franchisee acknowledges that Franchisee is not, nor is Franchisee intended to be, a third party beneficiary of any other agreement or contractual relationship to which CITY WIDE is a party.
- 30.6 Franchisee acknowledges that the success of the Franchised Business contemplated by this Agreement depends, to a large extent, upon Franchisee as an independent businessperson having complete control and direction over Franchisee's business operations and employees, subject only to the conditions and obligations contained in this Agreement and that this Agreement does not constitute or create a security.
Source: Item 22 — CONTRACTS (FDD page 65)
What This Means (2025 FDD)
According to the 2025 City Wide Franchise Disclosure Document, the franchise agreement itself does not constitute or create a security. However, the agreement functions as a security agreement, allowing City Wide to secure its interests.
Specifically, City Wide's franchise agreement will constitute a security agreement. This means that City Wide, upon request, can require the franchisee to execute additional instruments, such as a Uniform Commercial Code (UCC) financing statement, to perfect City Wide's security interest. City Wide is also authorized to file copies of the agreement and UCC financing statements to further secure their interest.
However, City Wide agrees to subordinate its security interest to any bank or lender that provides funds to the franchisee for the construction or development of the franchised business. This subordination does not apply to the refinancing of such loans. This indicates that while City Wide aims to protect its interests through a security agreement, it also facilitates the franchisee's ability to obtain financing for their business.
The FDD also states in section 30.6 that the agreement does not constitute or create a security. This statement seems to contradict the earlier statement that the agreement will constitute a security agreement. It is important to note that the agreement not creating a security likely refers to the franchisee not being offered a security by entering into the agreement. The security agreement refers to City Wide's ability to protect their interests in the franchise.