Zambrero’s $500k break-lease lawsuit
MORE than 100 fast-food restaurants were approached in a bid to replace a loss-making fast-food Mexican store after the company walked out on their lease in a Queensland shopping centre, a landlord has claimed in court.
But Toowong Village landlord YFG Shopping Centres Pty Ltd (YFG) had no luck in finding a tenant to replace the Zambrero outlet, according to their claim against Zambrero Property Group Pty Ltd (Zambrero) and franchisee Carla Menkens, from Norman Park, for $505,426 damages for breach of contract.
The claim, filed in the District Court, states that the lease to Zambrero was terminated on November 29, 2018 after ZPG allegedly repudiated the seven-year lease by failing to open the store in a food-court on Sherwood Rd on November 1.
YFG is claiming total losses of $505,426 from Zambrero and Ms Menkens, including $336,000 in unpaid rent under the lease which was due to run until 2022.
Zambrero serves burritos, nachos and salad bowls and was founded in Canberra in 2005 by medical student Sam Prince. It has grown to more than 165 stores in Australia, plus outlets in New Zealand, Thailand and Ireland.
YFG claims in court documents that it has taken "all reasonable steps" to find an alternative tenant to mitigate its loss, including having its agent contact 140 fast food outlets to see if they would rent the restaurant site between July 2017 and 2019.
The outlets approached include Sumo Salad, Red Rooster, Subway, Oporto, KFC, Pizza Hut, Miss Indian, MOS Burger, Carl's Jnr, Brodies and Betty's Burgers, court documents state.
Many did not like the fact it was in a food-court and preferred an external store, YFG claims in court documents.
But Zambrero claims in its defence that the $505,000 claimed loss was "as a result of YFG's failure to take reasonable steps to re-let the shop" and says YFG "unreasonably incurred" costs to remove Zambrero's fittings from the outlet, when the fit-out could have been used by a new tenant.
Zambrero argues in its counterclaim against YFG that a Zambrero staffer told YFG that the Toowong Village store was "one of the worst performing Zambrero restaurants" on November 15, 2016 and that YFG "did not … take any or adequate steps to find a replacement tenant for the shop".
Zambrero staffer Brad Flinn also told the YFG executive that Ms Menkens "was experiencing personal challenges" and that Zambrero and Ms Menkens "were unable to sustain the restaurant", court documents state.
Zambrero argues that YFG could have found a replacement tenant paying identical rent to Ms Menkens by February 2017 if YFG had taken action from November 2016.
Zambrero also alleges that YFG "falsely represented" that it would agree to surrender the lease in 2018.
YFG says it would have agreed to surrender the lease on terms acceptable to it, and it denies it induced Zambrero to remain in the shop and continue to pay rent and other costs of the lease.
Zambrero franchisee Ms Menkens denies she has breached a contract with YFG and argues YFG is not entitled to damages from her under the lease guarantee, because the lease guarantee she gave "was procured by the unconscionable conduct of Zambrero", a claim Zambrero denies.
YFG argues it was not aware of any allegedly unconscionable conduct by Zambrero and says it had "no obligation to satisfy itself that" Ms Menkens was aware of the nature of the lease guarantee.
Ms Menkes states in her defence filed in court that at the time of signing the lease guarantee she was seven months pregnant and "inexperienced as to commercial and business dealings".
Ms Menkens states that YFG knew, or ought to have known, that she was excluded from negotiations regarding the terms of the lease guarantee, the lease and the agreement.
Ms Menkens emailed YFG agent Brent Campbell in July 2017 and told him that there had been no increase in sales when the Zambrero business tried "to push the night-time delivery trade" but there had been an increase in wages.
Ms Menkens told Mr Campbell that she had tried to sell the business with no success.
She told him it was "losing so much money … not many people are interested as we have to tell them how the shop is actually doing".
No court date for hearing has been set.