What must a Desi District franchisee do if they grant an 'all assets' security interest?

According to Desi District's 2024 Franchise Disclosure Document, a franchisee is prohibited from granting a security interest in the Franchise Agreement itself to any person or entity. However, if a Desi District franchisee grants an "all assets" security interest to a lender or secured party, they must ensure that the secured party expressly exempts the Franchise Agreement from that security interest.

This requirement protects Desi District's interest in maintaining control over the franchise rights. By ensuring the Franchise Agreement is excluded from the security interest, Desi District prevents a lender from potentially taking control of the franchise rights in the event of a franchisee default. This provision is designed to ensure that the franchise remains in the hands of an approved operator who meets Desi District's standards.

This type of clause is relatively common in franchising. Franchisors want to avoid situations where a lender could step in and operate the franchise or transfer it to an unapproved party. Prospective franchisees should carefully review this provision and discuss it with their legal and financial advisors to understand the implications of granting security interests in their assets.