LOUISVILLE, Ky. (WDRB) -- KFC Corp., a unit of Louisville-based Yum Brands, says 77 of its fried chicken restaurants across the country could be “in jeopardy” because of a real estate dispute with a California investment group.
KFC is asking a judge to issue a restraining order preventing an affiliate of Beverly Hills-based Black Equities Group from declaring KFC in default of a lease covering the 77 stores, according to a lawsuit filed Thursday in U.S. District Court in Louisville.
The dispute involves restaurants in 20 states – including two in Louisville – for which KFC pays Black Equity affiliate SBKFC Holdings more than $9.3 million annually in rent, according to documents filed in court.
Most of the restaurants are operated by independent franchisees, KFC says in the suit, and the company is trying to prevent its landlord from “accelerat(ing) all lease payments and evict(ing) KFC and its franchisees from all 77 properties” as soon as today.
Neither KFC nor Black Equities immediately responded to phone messages on Monday.
The dispute centers on a provision of the lease requiring KFC to sometimes swap restaurant properties with the Black Equities affiliate. The landlord can request that any restaurant sites on which KFC has not operated for at least two years be traded for active restaurants owned by KFC.
Black Equities has engaged in a “pattern of delay” in recent months as the two sides have worked towards a swap involving 4 of the 77 restaurant sites – making it impossible for the transaction to occur by today's deadline, KFC says in the suit.
KFC now fears the landlord might use the failed transaction as a basis to declare the whole lease in default and to evict the restaurants, according to the suit.
“KFC's franchisees (including some of its largest) would immediately be at risk of losing store locations they had operated for years, and expected to operate for years to come,” according to KFC's complaint. “…The relationships and loyalty these franchisees had, over time, formed with customers at these locations would be placed in jeopardy.”
The lease goes back to 2003, when KFC sold the land and buildings of 77 of its “concept stores” to GE Capital Franchise Corp. and then leased the properties back from GE Capital through 2019.
Some of the 77 restaurants are operated by KFC's largest franchisees, according to the complaint, “represent(ing) a significant portion of KFC's designated marketing areas, such as Atlanta and Phoenix.”
In Louisville, the lease covers the restaurants at 5012 S. Third St. and 1911 W. Broadway, according to the suit.
