Lease agreements: Challenging the contract’s validity

housecards4Franchising sometimes works very well for investors.

Sometimes not so well.

Canadian franchises are almost 100% financed through 6 national banks. The vast majority of the debt financing is through a federal guaranteed loan program.  That is after your life savings (redundancy package) and love money are put into the pot.

  • I will be looking much more closely at the lease financing arrangements in the United States in the next little while.

Principle: Some lease contracts and their accompanying personal guarantees are void (ie. unenforceable by a Court and you get the $ back) because they are judged to be:

  1. unconscionable and/or
  2. have “mixed” asset types which is a violation of commercial laws.

In addition some lease contracts maybe in violation of “normal” state usury laws or franchise-specific statutes.

Everyone keeps paying their lease, assuming that it is a valid contract that they will be forced to pay if they challenge the validity of the agreement. Guess again.

The more I look, there are lots of very sloppy and very questionable leases out there.

To Do

  1. Every franchisee should get out their lease papers.
  2. Find out what company has their lease.
  3. Note: When it started, when it ends and the monthly payment.

Stay tuned as I bring forward some information that has a direct bearing on thousands of U.S. franchisees in these tough times.

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