Restructured Lease Agreements Without Franchise Input or Consent Could Damage Jack in the Boxs Revenue StreamThe Franchise Community
The National Jack in the Box Franchisee Association (NFA) today announced it has filed a complaint with the California Department of Business Oversight concerning a new financial restructuring strategy being employed by Jack in the Box. Jack in the Box intends to realign its assets and revenues, including its portfolio of property leases, among its newly created subsidiaries.
On October 8, 2018, Jack in the Box sent a letter to the landlords of the approximately 1800 different properties informing them of the company’s intentions to restructure with the goal of increasing credit worthiness and securing new financing. In the letter Jack in the Box requests that current landlords transfer their lease agreements from Jack in the Box, Inc. into one of its newly formed subsidiaries—Jack in the Box Properties, LLC.
“The intent behind filing this complaint is to protect the tenant rights of Franchisees who have invested their life savings in these buildings,” said Dan Watkins, attorney representing the National JIB Franchisee Association. “We are asking the state who licenses and regulates franchising and Jack in the Box, Inc. to insure the franchisees are protected from losing their livelihood as well as their employees.”
Without vital information from Jack in the Box regarding which landlord holds their master lease agreement, the stipulations contained in those agreements, or whether that agreement has been re-assigned to a new subsidiary, there is cause for concern across the franchise community. They are concerned about the possibility that their rights to occupy and operate at a given location could be terminated with very little notice or opportunity to rectify the situation.
Under the current agreement, the 1800 leased properties where Jack in the Box is identified as the primary lessee, 900 of which are in the state of California, are sub-leased to franchise owners who pay all rents, taxes, and insurance to Jack in the Box which are then sent on to each respective landlord. Franchisees are not in direct contact with landlords and do not have a view of how those rent payments are split amongst Jack in the Box and landlord.
As stated in the complaint from the NFA, landlords who opt not to have their lease re-assigned to the new subsidiary and wish to have their lease agreement remain with Jack in the Box, Inc. have been warned by JIB in a letter to them that there may be no assets or revenues to pay their rents.