Opinion ID: 471762
Heading Depth: 1
Heading Rank: 2

Heading: The Rent Control Regulation

Text: 5 In contrast to the PMPA, the rent control regulation enacted by the Commonwealth of Puerto Rico does seek to regulate a substantive element of the franchise agreement. In March 1981, the Department of Consumer Affairs (DOCA) of the Commonwealth of Puerto Rico promulgated Regulations to Determine the Rent to be Paid by Gasoline Filling Stations (Regulation 2758). Section 5 of the Regulation states that the rental rate of a retail gasoline filling station shall be established by agreement between the lessor and the lessee, taking into account seven listed criteria including the amount of the investment made by the lessor, the market value of the property, the former rental rate, and the net income derived by the lessee. Section 6 of the Regulation provides that if the parties, after negotiation, are unable to reach an agreement regarding the amount of rent, either of them may file a petition in the Department [DOCA] ... for the determination and fixing of the rent. Under Section 7 of the Regulation, DOCA sets a rent based on a formula with a number of variables. This rent stays in effect for four years, unless either party files a petition for a redetermination of the rent because of a substantial change in any of the elements that comprise the established formula. Regulation 2758, Section 9. Regardless of whether the rent is set by agreement between the parties or by DOCA, the rental rate may never exceed ten percent of the market value of the leased filling station. Regulation 2758, Section 10. 6 If rent negotiations between a franchisor and franchisee fail, and the franchisee petitions DOCA to set a rental rate, the franchisor can choose to terminate the franchise as long as the requirements of the PMPA are met. Thus, if the original rent increase sought by the franchisor had been made in good faith and in the ordinary course of business, and the franchisee had refused to agree to the new rate and had instead petitioned DOCA, the franchisor may terminate or not renew the franchise regardless of the objective unreasonableness of its original rental demand. As DOCA made clear in its brief and at oral argument, any rent proceedings pending before DOCA would be moot once a franchise had been properly terminated under the PMPA, and such proceedings would come to a halt. The franchisor would then be free to negotiate with a different franchisee. That franchisee could also petition DOCA for a rental rate, but then clearly would face the possibility of not receiving the franchise. Alternatively, the franchisee could choose to accept the rent requested by the franchisor, even if such rent is higher than the rate DOCA would have fixed. 2 In no case, however, could the rental rate exceed ten percent of the market value of the filling station.