In franchising, it often happens that the business premises from which the franchisee operates his business is not owned by the franchisee, but is rented from the franchisor. In turn, the franchisor often rents the business premises from another party. If the lease between the franchisor and the (main) lessor comes to an end, the franchisee will in certain cases want to take on the rental obligations himself. This, for example, to prevent the business premises from having to be vacated, with all the consequences that entails for the franchisee.
In principle, there may be a negotiation period in which the franchisee and the (main) lessor try to reach an agreement. These negotiations can continue even after the (main) lease agreement between the (main) lessor and the franchisor has actually come to an end. In those cases, the franchisee may use the business premises without a rental agreement, but only with the permission of the (main) lessor.
If the parties eventually come to an agreement on a new rental agreement, the period of negotiations can be included in the new agreement, for example by allowing the rental agreement to take effect retroactively. But what if the parties cannot reach an agreement? Does the franchisee still have to pay rent for the period that he has actually used the business premises, but without a lease?
Recently, a court ruled on such a matter. The facts were as follows. The main lessor is the owner of a commercial building, which building was (sub)let to a franchisee of a sandwich shop formula. The main lease had come to an end in March 2008. Before the termination of the (main) rental agreement, the franchisee has approached the main lessor and requested it to enter into a new rental agreement directly with him. The parties subsequently negotiated for a considerable period of time, namely until February 2009, about entering into a new lease, but unfortunately were unable to reach an agreement in the end. The reasons for this are not explicitly stated in the court verdict.
During the eleven months that there was (no longer) a formal lease agreement, the franchisee actually continued to use the business space as a sandwich shop with the permission of the main lessor. When it became clear that no new lease would be concluded, the main lessor requested the franchisee to vacate the business premises. The franchisee has done this in a timely manner. The main lessor has also requested the franchisee to pay a “use fee” for the period when there was no (anymore) lease, but during which the franchisee did actually use the business space. However, the franchisee has refused to do so.
In the lawsuit that follows this conflict, the court finds that the franchisee actually used the business premises from March 2008 until the eviction in 2009, although there was no underlying lease agreement. The court nevertheless considers it plausible that there was some form of agreement between the parties about the payment of compensation to the main lessor. It follows from this that the main lessor could rely on the fact that the franchisee owed it a fee for the use of the business premises during the period of the negotiations. This fee is then determined on the basis of what the franchisee would have owed in rent if the (sub)lease agreement had still existed.
In short, the actual use of a business premises as a tenant, while no lease agreement exists, may in certain cases be accompanied by an obligation to pay a usage fee to the landlord, based on what the court has noted about the previous issue. It obviously makes sense to at least keep a reserve for such expenses should you find yourself in such a situation.
Ludwig & Van Dam franchise attorneys, franchise legal advice