Jury Must Decide if Franchisor Assumed Franchisee's Lease Obligations

A restaurant franchisor, at the franchisee's request and with notice to the owner, entered the franchisee's space, changed the locks, and began operating the restaurant. Several months later, the franchisor sent the owner a letter saying that the franchisee had transferred the restaurant ownership to it and that the franchisor's operating company was assuming operations of the restaurant. After operating the restaurant and paying rent for two months, the franchisor stopped paying rent and moved out. So the owner sued the franchisor for violating the lease by failing to pay its rent and operate continuously and for abandoning the space. The franchisor asked the court to dismiss the lawsuit, which it did. The owner appealed.

A North Carolina appeals court reinstated the lawsuit, ruling that a jury must decide if the franchisor assumed the franchisee's lease obligations. The court said that there was evidence to support the owner's argument that the transfer of ownership of the franchise to the franchisor constituted an assignment of the franchisee's lease and its obligations under the lease. For example, a jury could interpret the franchisor's actions and the contents of its letter as an assumption of the franchisee's lease, the court said [Cary Crossroads Assocs., LP v. Atlanta Bread Co. Intl., Inc.].