McDonald's keeps 1 ruble rental rate

McDonald's has retained the right to pay only a ruble per square meter for two of its restaurants in the city's center.

The Moscow region's Federal Arbitration Court repealed two lower-level court decisions in favor of the city's property department against Moskva-Makdonalds, one of the chain's franchisees. The department wanted to change the terms of Moskva-Makdonalds' lease, on which it paid 1 ruble per square meter per year for two restaurants — a 1,577-square-meter location at 50-52 Arbat and a 739-square-meter location at 15 Bolshoi Nikolopeskovsky Pereulok.

City Hall set the rate in 1992 for a period of 20 years for the first McDonald's restaurants to compensate Moskva-Makdonalds for its reconstruction of the premises. The rental agreement was supposed to last for 49 years.

Until 1996, City Hall owned 51 percent of Moskva-Makdonalds, but by 2005 McDonald's Restaurants of Canada Ltd. had completely purchased the company. For most McDonald's restaurants rented from the city, the rental rates were raised, but two restaurants remained at the rate of 1 ruble per square meter, a representative of the property department told Vedomosti.

The property department and McDonald's confirmed the court's ruling. City Hall will appeal, said Natalya Bykova, the property department's press secretary.

The court held that high inflation and a new municipal law establishing a minimum rental price didn't provide grounds for changing a contract, as the property department should have foreseen that rental prices might increase throughout the contract period.

The property department has tried to change the rate since 2007. In the beginning, it cited an article in the Civil Code allowing changes to contracts given a substantial change in circumstances and tried to increase the rental price to market rates, which are 18,883 rubles to 21,243 rubles ($650 to $730) per square meter per year, not counting value-added tax. But two courts turned down that request.

Then the city filed a new suit seeking rents to be increased to a minimal level, citing a new city law requiring that rents cannot be lower than a minimum established by the authorities.

A Moscow arbitration court upheld the suits at the end of 2009, allowing the city to increase the rent starting in 2010 to the minimal level for municipal premises, or 1,200 rubles per square meter per year.

Moskva-Makdonalds appealed, saying the rate of 1 ruble per square meter was agreed upon in exchange for its investment in the premises and that the company already had upheld its end of the deal.

By Yelena Vinogradova and Anton Filatov / Vedomosti