Is granting a security interest 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. |
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| 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; the transferee and the transferee's owners and managers, at the transferee's expense, must complete our training programs; we |
| n. | Franchisor's right of first refusal to acquire franchisee's business | 14.F. | We have the right to match any offer to purchase your Cordova Business or the Corporate Entity operating your Cordova Business. |
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, granting a security interest 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, which Cordova may grant or withhold at its discretion.
Specifically, the definition of 'transfer' includes '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 finance their business by using the franchise as collateral, it is legally considered a transfer under the franchise agreement. This has significant implications, as it triggers the franchisor's rights and requirements related to transfers.
Cordova's approval of a transfer is subject to certain conditions. These include providing 30 days prior written notice, ensuring the franchisee is not in default, obtaining the transferee's agreement to be bound by the franchise agreement, and requiring the transferee's owners to personally guarantee the agreement. Additionally, Cordova retains the right of first refusal to match any offer to purchase the Cordova business.
Given the broad definition of 'transfer' and the associated requirements, prospective Cordova franchisees should carefully consider the implications for any financing or business restructuring plans. It is crucial to communicate with Cordova early in the process to understand their specific requirements and ensure compliance with the franchise agreement.