Is the Crave Development Agreement allowed to be pledged, mortgaged, hypothecated, or given as security for an obligation?
Crave Franchise · 2025 FDDAnswer from 2025 FDD Document
You understand and acknowledge that the rights and duties set forth in this Agreement are personal to you, and that we have granted rights under this Agreement in reliance on the business skill, financial capacity and personal character of you and the Principals. Accordingly, neither you nor any Principal shall sell, assign (including but not limited to by operation of law, such as an assignment under bankruptcy or insolvency laws, in connection with a merger, divorce or otherwise), transfer, convey, give away, pledge, mortgage or otherwise encumber any direct or indirect interest in you, in this Agreement, in the Franchised Business and/or any of the Franchised Business' material assets (other than in connection with replacing, upgrading or otherwise dealing with such assets as required or permitted by this Agreement), without our prior written consent. Any purported assignment or transfer, by operation of law or otherwise, made in violation of this Agreement shall be null and void and shall constitute a material event of default under this Agreement.
Source: Item 23 — RECEIPTS (FDD pages 63–253)
What This Means (2025 FDD)
According to Crave's 2025 Franchise Disclosure Document, the Development Agreement contains restrictions regarding the ability to pledge, mortgage, or otherwise encumber the agreement. Specifically, the document states that neither the franchisee nor any principal can pledge, mortgage, or otherwise encumber any direct or indirect interest in the agreement without Crave's prior written consent. Any attempt to do so without consent is considered a material breach of the agreement, rendering the action void.
This restriction is in place because Crave grants rights under the Development Agreement based on the business skill, financial capacity, and personal character of the franchisee and their principals. Crave wants to ensure that the individuals initially vetted and approved remain in control of the development rights. This protects Crave's interests by preventing unqualified or unapproved parties from gaining control over the development of Crave franchises.
For a prospective Crave franchisee, this means that they cannot use the Development Agreement as collateral for financing or other obligations without obtaining explicit written permission from Crave. This could limit the franchisee's financing options and require them to seek alternative methods of securing capital. It is important for potential franchisees to fully understand these restrictions and discuss any financing plans with Crave during the due diligence process.
This type of restriction is relatively common in franchising, as franchisors want to maintain control over who is developing their brand and ensure that franchisees are committed to the business. Franchisees should carefully review the transfer and assignment provisions in the Development Agreement to understand all limitations on their ability to transfer or encumber their rights.