Is the grant of a mortgage considered a transfer of a Cordova franchise?
Cordova Franchise · 2025 FDDAnswer from 2025 FDD Document
| i. | Franchisee's obligations on termination/non-renewal | 6, 17 | You must: pay all sums that you owe to us under the Franchise Agreement and all other agreements with us; cease owning and operating the Franchised Business; cease representing yourself as a franchisee of ours; permanently cease using and/or accessing the System, the Licensed Marks, our confidential information, the Manuals, the Business Management System, the Business Management System Data, and the System Supplies; return the Manuals and all confidential information to us in the original form provided to you and document the destruction of all electronic files related to same; completely de-identify the location and/or facility associated with the Franchised Business; as requested by us, transfer to us all data, telephone listings, digital media, accounts, web listings and websites associated with the Franchised Business; and abide by the post-termination non competition covenants and restrictions. |
|---|---|---|---|
| j. | Assignment of the contract by franchisor | 14.A. | No restriction on our right to assign. |
| k. | "Transfer" by franchisee definition | 14.B. | A transfer means and includes, whether voluntary or involuntary, conditional or unconditional, direct or indirect: (a) an assignment, sale, gift, transfer, pledge or sub-franchise; (b) the grant of a mortgage, charge, lien or security interest, including, without limitation, the grant of a collateral assignment; (c) a merger, consolidation, exchange of shares or other ownership interests, issuance of additional ownership interests or securities representing or potentially representing ownership interests, or redemption of ownership interests; and (d) a sale or exchange of voting interests or securities convertible to voting interests, or an agreement granting the right to exercise or control the exercise of the voting rights of any holder of ownership interests or to control the operations or affairs of Franchisee. |
| l. | Franchisor's approval of transfer by franchisee | 14.B. | Transfers require our prior written consent, which may be granted or withheld in our discretion. |
| m. | Conditions for franchisor's approval of transfer | 14.C. | For approval of your transfer, you must provide us with 30 days prior written notice of the proposed transfer; you and your Owners must not have defaulted in your obligations under the Franchise Agreement and all other agreements with us; you and your Owners must be in compliance with your obligations under the Franchise Agreement and all other agreements with us; the transferee must agree to be bound by all of the terms and provisions of the Franchise Agreement; the transferee's owners and their spouses must personally guarantee all of the terms and provisions of the Franchise Agreement; you and your Owners and their spouses must sign a general release in favor of us; the transfer must provide for the assignment and/or ownership of the approved location for the Franchised Business, and the transferee's continued use and occupancy of such location throughout the term of the Franchise Agreement; the assets of the Franchised Business must be transferred to the transferee; |
Source: Item 17 — RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION (FDD pages 33–37)
What This Means (2025 FDD)
According to Cordova's 2025 Franchise Disclosure Document, the grant of a mortgage is considered a transfer of the franchise. The FDD defines 'transfer' broadly, encompassing various scenarios beyond a simple sale or assignment. This definition is important for prospective franchisees to understand, as any action falling under this definition requires Cordova's prior written consent.
Specifically, the definition of 'transfer' includes, but is not limited to, 'the grant of a mortgage, charge, lien or security interest, including, without limitation, the grant of a collateral assignment.' This means that if a franchisee seeks to secure financing by using the franchise as collateral, it is classified as a transfer under the franchise agreement. Cordova retains the right to approve or deny such a transfer at its discretion.
This requirement for franchisor approval is a common practice in franchising, allowing Cordova to maintain control over who has a financial interest in the franchise and to ensure that any such arrangement does not negatively impact the brand or the operation of the business. The franchisee must seek permission from Cordova before granting a mortgage, and Cordova's approval is not guaranteed.
Cordova's right of first refusal to acquire the franchisee's business is also relevant in the context of a transfer. Before a franchisee can proceed with a transfer, including the grant of a mortgage, Cordova has the option to match any offer. This provision further protects Cordova's interests and ensures that it has the opportunity to maintain control over the franchise if it chooses.