Under what condition can a Coffee News franchisee pledge or encumber the franchise agreement?
Coffee_News Franchise · 2025 FDDAnswer from 2025 FDD Document
Franchisee agrees not to pledge or encumber this Agreement except with the express written approval of Franchisor, to be granted in the Franchisor's sole discretion, which Franchisee may request in the event that Franchisee seeks to sell the Franchise granted hereunder to a third party who desires to use said Franchise as collateral for purchase financing.
Franchisor shall have the authority to extend the term of this Agreement beyond the term set forth in paragraph 3 to enable a purchaser of the Franchise to obtain financing of said purchase if Franchisor, in his sole discretion, determines such extension to be necessary.
Franchisee may request approval of the use of the Franchise granted hereunder as collateral and/or the extension of the term of this Agreement by written request sent to address provided under paragraph 14.
Source: Item 23 — Receipts (FDD pages 36–118)
What This Means (2025 FDD)
According to Coffee News's 2025 Franchise Disclosure Document, a franchisee is generally prohibited from pledging or encumbering the franchise agreement. However, there is an exception: a Coffee News franchisee may request written approval from the franchisor to pledge or encumber the agreement if they seek to sell the franchise to a third party who wants to use the franchise as collateral for purchase financing. The franchisor has sole discretion over whether to grant this approval.
Furthermore, Coffee News has the authority to extend the term of the agreement beyond its original term if it determines that such an extension is necessary to enable a purchaser to obtain financing for the franchise. The franchisee must submit a written request to Coffee News to seek approval for using the franchise as collateral and/or to extend the agreement's term.
This provision protects Coffee News by ensuring that franchise agreements are not easily used as collateral without their consent, maintaining control over who becomes involved in the franchise system. For a prospective franchisee, this means that if they ever want to sell their Coffee News franchise and the buyer needs financing, they will need to get Coffee News's explicit approval to use the franchise agreement as collateral. This adds a layer of complexity to the sale process but also ensures that Coffee News has a say in who their franchisees are.