• Lock-in period in rent agreement and franchisee agreement

Dear Sir,

I would humbly request your valuable advice in the following scenario - I took a franchisee of an Indian fast food chain for a 5 year franchisee agreement on 8th April 2015. The Franchisor company took a commercial property on rent lease in Delhi for 5 years (@Rs. 30,000 per month rent) on its own from the landlord directly on 1st May 2015 with a LOCKIN PERIOD OF 1 YEAR and directed me to start selling its products from that place under the franchisee agreement. Therefore the Rent Agreement was between Franchisor and the Landord and the Franchisee agreement was in between my company and the Franchisor company. I was not the Tenant but a Franchisee authorized to run the business from the shop allotted by the Franchisor. Though on mutual VERBAL agreement, I agreed to pay the monthly rent to the Franchisor who in turn paid the same to the landlord. I also paid a 4 months advance rent as asked by the franchisor from me. Franchisor and my company had no written agreement regarding rent to be paid on monthly basis. I remember the Franchisor company made me sign and stamp on the rent agreement between them and the landlord (though i had no business signing it but due to lack of awareness I signed it). But on the rent agreement nowhere is my or my company name is mentioned anywhere and also it does not say that I am liable to pay any rent as the agreement is between the landlord and franchisor company.

The rented place address was printed on the Franchisee agreement prior to the rent agreement signup and was in my knowledge. Now due to poor sales and losses in business I decided to shut it down after 3 months and served a written notice to the franchisor to terminate the business (as per franchisee agreement terms) and paid the rent for the notice period. After that i stopped paying rent and the Franchisor is demanding  the lockin period rent from me so that it can pay the same to the landlord. I told them that I am not liable to pay the rent as I had no written rent agreement with your company and advised them to look for a different franchisee to continue business. To which the franchisor company replied to me that since you signed and stamped on the rent agreement (kindly note that neither my nor my company's name is mentioned anywhere on that rent agreement as it is between landlord and franchisor company), you are liable to pay the rent. I refused and they threatened me to drag a case in the court for recovery. Also the franchisee agreement states that any arbritation costs will be shared between both the parties. What does it mean?

Kindly let me know if such is the case then am I liable to pay the rent for the lockin period or not ? If the franchisor files a suit of recovery against me then will i lose the case. What will be the outcome. I have already lost 10-15 lakhs in the business. Please advise i request humbly.
Asked 1 year ago in Civil Law from Delhi, Delhi
1) it is necessary to peruse the franchisee agreement and rental agreement signed between the parties . 

2) if you are not party to the rental agreement you are not liable to pay the rent for lock in period to the franchiser 

3) in the event arbitration clause is invoked by franchiser costs have to be borne by you and  the franchiser 

4) franchisor cannot file suit for recovery in view of arbitration clause 

5) better consult a local lawyer . it is necessary to peruse the agreement signed by you to advice further 
Ajay Sethi
Advocate, Mumbai
23308 Answers
1220 Consultations
5.0 on 5.0
Hi, you need not pay the rent for lock in period and there is contract to the contrary between yourself and landlord.

2. The Rental Agreement is between landlord and the franchiser you are not a party to the contract and only terms of the franchise  agreement is binding on you.

3. As per the terms of the franchise  agreement you have terminate the business then you are not liable to pay any amount..

4. In the Franchise agreement Arbitration agreement is there so if they want to file a suit for recovery of money then they have to invoke Arbitration clause as per the terms of the agreement both of you can't approach the court.
Pradeep Bharathipura
Advocate, Bangalore
4105 Answers
133 Consultations
4.3 on 5.0
You have not entered into any rental or lease agreement with the landlord or the franchisor hence you need not worry about the notice and threats made. You give a reply notice stating that you have never entered into any rental agreement with the franchisor and further the franchisor cannot sub let the property to a third person as per the original agreement entered into by his company with the original landlord, hence his claim stands repudiated, in spite of this reply if the franchisor chooses to approach court, you may challenge the same on the same grounds. 
T Kalaiselvan
Advocate, Vellore
14090 Answers
127 Consultations
5.0 on 5.0
1. It is not clear as to in what capacity you signed on the rent agreement between the landlord and franchisor. Legally speaking, you had no role to play in the rent agreement, but you could have signed as a witness. The legal rights which can be asserted against you cannot be ascertained except after a threadbare perusal of the rent agreement. The factual position in so far as your liability vis-a-vis the rent agreement between the landlord and franchisor will remain unclear unless this exercise is carried out.

2. If you did not enter into a rent agreement with the franchisor you can jolly well refuse to pay the rent for the lock in period.

3. Sharing of arbitration costs implies that if dispute is sent to arbitration the amount to be paid to the lawyers and the arbitrator will have to be paid jointly by both of you.
Ashish Davessar
Advocate, Jaipur
18167 Answers
449 Consultations
5.0 on 5.0
1) you have good case on merits 

2) you are not bound to pay rentals for lock in period as you have not signed rent agreement with the landlord 

3) terms of agreement are sacrosanct  .you have terminated agreement as per termination clause in contract 

4) you have paid rent for notice period as per contract 

5) you have not committed any breach of contract
Ajay Sethi
Advocate, Mumbai
23308 Answers
1220 Consultations
5.0 on 5.0
I would like you to know that I signed the photocopy of the rent agreement just as an acknowledgement that I am aware about the rent agreement but I did not enter into that rent agreement at all. The rent agreement is duly registered in by the court and I have absolutely no role to play in it.
Your question itself is having an answer in it, i.e., I have absolutely no role to play in it.    You are right by saying that.  You have signed the photocopy of the rent agreement, it means you are aware of the rental agreement between the franchisor and the landlord, so you can proceed with the franchise or business with the franchisor finding him to be a reliable person to do business through him in that place.  There is no other meaning for that.



Also, in the franchisee agreement there is an "Indemnity clause" which states that the franchisee will keep the franchisor indemnified against any loss arising out from breach of the agreed terms. Now my question is that if i do not pay the lock in period amount (which is nowhere in written agreed terms) then whether I will have to bear the same due to a resulting loss to the franchisor when he pays the rent to the landlord ? No one is sure, maybe the franchisor company appoints another franchisee at that location or runs on its own to avert a loss situation. What is my liability in any such case.

The indemnity clause between you and the franchisor is a protection against any loss either way in the business and not due to the loss of any other external issue for eg., the lock in period loss etc., more particularly when it is not finding a place or mention in the agreement between you two. You have not entered into a rental agreement with the landlord neither you are responsible to pay the rent to the landlord.  The franchisor for his own convenience entered into such an agreement with the landlord so mit is his problem whether to pay the same or to face the music of law, you are not bound to answer such absurd issues which cannot be maintained legally.



The arbitration clause is a common insertion.  This rental issue cannot be referred to arbitrator, ignore the issues and be fearless. 
T Kalaiselvan
Advocate, Vellore
14090 Answers
127 Consultations
5.0 on 5.0
1. The only liability you incur is the one to indemnify the franchisor for any loss which he suffered. The onus is on him to prove the loss in the court. If he goes to court you can contest his claim.

2. The arbitration will take place according to the arbitration clause.
Ashish Davessar
Advocate, Jaipur
18167 Answers
449 Consultations
5.0 on 5.0

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