What is the dependency between the transferee-franchisee's obligations to pay Royalty Fees and obligations under promissory notes for a Pearce Bespoke franchise?

According to the 2025 Pearce Bespoke Franchise Disclosure Document, if a franchisee finances any part of the purchase price of the franchise, their obligations to pay Royalty Fees to Pearce Bespoke take precedence over any promissory notes, agreements, or security interests related to that financing. This means that in the event of financial difficulties, Pearce Bespoke will be prioritized for Royalty Fee payments before the franchisee's lenders or other financial institutions.

For a prospective Pearce Bespoke franchisee, this subordination clause is a critical consideration when securing financing. It essentially elevates Pearce Bespoke's financial interests above those of the franchisee's lenders. This could make it more difficult for a franchisee to obtain financing, as lenders may view the arrangement as increasing their risk. Franchisees should carefully review this clause with their financial advisors and lenders to fully understand the implications.

This type of subordination is relatively common in franchising. Franchisors want to ensure a steady stream of royalty payments, as these are crucial to their revenue model. By subordinating the franchisee's debt obligations, Pearce Bespoke aims to protect its own financial interests and maintain a consistent revenue flow from its franchisees. Franchisees need to be aware of this dynamic and factor it into their financial planning and risk assessment.