Entrepreneurship & Small Business

Franchise Tenant Very Behind In Rent

  • Last Updated:
  • Oct 31st, 2019 5:15 pm
[OP]
Deal Fanatic
Jan 21, 2008
6229 posts
2289 upvotes

Franchise Tenant Very Behind In Rent

Hi there, we own a small commercial property that is tenanted by a big name franchise. The franchisee has been there about 5 yrs so far on a 10 yr lease. Franchisee throughout the lease was often 1 or 2 months behind on rent. In recent times, the franchisee is now 3 or even 4 months behind on rent. How should we proceed? The franchisee is a nice person who asks us to try to be understanding as the business does not appear to be making money, but we can't allow this to go on forever. Should we contact the franchise direct? Your advice is greatly appreciated, thanks in advance
7 replies
Newbie
Oct 9, 2008
74 posts
26 upvotes
Terrace
Have you had the discussion about this 3-4 month delay being unsustainable with the Franchisee?
Pending your discussion maybe advise that you will have to escalate to the mother Franchise. Not sure what kind of help they would be, but first have a good discussion with the Franchisee.

Can you verify that business is actually down/slow?
what kind of agreement do you have, any personal guarantees/ or Franchisor guarantees?
Deal Addict
Aug 12, 2004
4483 posts
2138 upvotes
Calgary
https://www.legalline.ca/legal-answers/ ... l-tenants/

The laws differ by province. You are legally allowed to change locks and take over and sell the property to recoup your loss.

I don't think contacting the franchise will do you any good. If you are not getting paid, you need to evict. It's that simple. You are a business.

Although I can't help you with the detailed business side of owning a commercial property, I can tell you that these scenarios are never good if you have a tenant behind, it will never get better and only worse. With the downturn in Calgary, I've seen several instances of businesses cleaning out their property overnight, and flee on their lease. If you are not actively checking the property, they may have already left.
Deal Expert
User avatar
Aug 2, 2010
15193 posts
4943 upvotes
Here 'n There
I believed the same sob stories you are and allowed commercial tenants to stay when they were past due. It never ended well. Kick the tenant out.
[OP]
Deal Fanatic
Jan 21, 2008
6229 posts
2289 upvotes
Basically yes, we are thinking to evict. Do we approach the head office franchise first or how should we go about this? Thanks again
Deal Fanatic
Oct 7, 2007
8394 posts
4355 upvotes
Would it be worth asking them how much they are able to pay towards rent now so that you can try to recover something BEFORE you evict them? I would just be worried that you might not recover any and something would be better than nothing.
Newbie
Jul 7, 2019
13 posts
4 upvotes
who is on the head lease? the franchisee or franchisor?
if the franchisor is on the head lease than you can definatley go to them, most times they will cover the rent and try to find a new franchisee, other times they will backout of the location but still owe you back rent.
The commercial real estate laws differ from residential, as I am no lawyer, I would suggest contacting a local laywer that deals with commercial leases (I can recommend one if you need, DM me) and see what options you have.
Also, check what your lease says about the lease hold improvement, often times when a franchisee will go dark, they will come at night and take all equipment and enything not bolted down. this can equate to tens of thousands of dollars.
Deal Fanatic
Sep 23, 2007
5061 posts
1158 upvotes
With some franchises, the lease is signed with the franchisor who then sublease to the franchisee. The intention is that if the franchisee is doing something to damage the brand (like selling expired stuff), the franchisor can terminate the franchise agreement and take over the location. Your first task is to confirm if this is the case.

If the lease is under the franchisee...your next task I recommend to reach out to a lawyer. Residential and commercial tenancy laws are totally different. There's no landlord/tenant board and tribunal (which is a blessing for you). You basically would just fall under small claims court if the amount is small enough. If you want to save the legal fees, I think you can just straight up change the locks and write him a letter stating the lease is terminated due to non-payment of rent. Read your lease agreement again. I imagine you had some clauses about what to do in the event of arrears and non-payment. Most likely there is a clause to address conditions to terminate lease and responsibilities of each party.

I don't think reaching out to the franchisor necessarily hurts but the way you approach will obviously differ depending on whether the lease is under the franchisor or franchisee. If the lease is under franchisee, the franchisor has no obligation to pay rent in arrears. If the lease is under the franchisor, then legally speaking, you can pursue the franchisor for rent, and the franchisor can pursue the franchisee for the sublease. The franchisor most likely would prefer not to face a store closure as it can damage the brand. So you do have a rather powerful stick.

I assume you have been escalating the issue and not just saying "ok man...pay me next week?" Keep all your correspondences. Try threatening to change locks and see how the tenant responds. Maybe he'll magically cough up the money or take a loan to do so?

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