Does the Mr. Sandless agreement specify if 'Indebtedness' includes obligations to third parties?
Mr_Sandless Franchise · 2025 FDDAnswer from 2025 FDD Document
The Security Interest is to secure payment of the following (the "Indebtedness"):
- 28.2.1 All amounts due under this Agreement or otherwise by you;
- 28.2.2 All sums which we may, at our option, expend or advance for the maintenance, preservation, and protection of the Collateral, including, without limitation, payment of rent, taxes, levies, assessments, insurance premiums, and discharge of liens, together with interest, or any other property given as security for payment of the Indebtedness;
- 28.2.3 All expenses, including reasonable attorneys' fees, which we incur in connection with collecting any or all Indebtedness secured hereby or in enforcing or protecting our rights under the Security Interest and this Agreement; and
- 28.2.4 All other present or future, direct or indirect, absolute or contingent, liabilities, obligations, and indebtedness of you to us or third parties under this Agreement, however created, and specifically including all or part of any successor agreement or extension of this Agreement, whether or not you execute any extension agreement or successor agreement.
28.2.5 Our security interest, as described herein, shall be subordinated to any financing related to your operation of the Business, including, but not limited to, a real property mortgage and equipment leases.
Source: Item 22 — CONTRACTS (FDD page 42)
What This Means (2025 FDD)
According to Mr. Sandless's 2025 Franchise Disclosure Document, the security interest granted by the franchisee secures the payment of 'Indebtedness,' which includes obligations to third parties. Specifically, the agreement states that 'Indebtedness' includes 'all other present or future, direct or indirect, absolute or contingent, liabilities, obligations, and indebtedness of you to us or third parties under this Agreement, however created.'
This means that the security interest Mr. Sandless takes in the franchisee's assets can be used to secure not only the franchisee's debts to Mr. Sandless itself, but also any debts the franchisee owes to other parties under the Franchise Agreement. This could include debts to suppliers, landlords, or other creditors that the franchisee incurs while operating the Mr. Sandless business.
However, the Mr. Sandless FDD also states that 'Our security interest, as described herein, shall be subordinated to any financing related to your operation of the Business, including, but not limited to, a real property mortgage and equipment leases.' This subordination clause provides some protection to the franchisee, as it means that the franchisee's obligations to a mortgage holder or equipment lessor will take priority over Mr. Sandless's security interest. This is a fairly standard practice in franchising, as it allows franchisees to obtain necessary financing to start and operate their businesses.