McDonalds - 1,200 fold rent increase in Moscow - So much for the contract!

When McDonalds first opened for business in Moscow, the city itself was the main shareholder in the joint venture, which negotiated a 49-year rental agreement on a number of properties back in 1992. This agreemeent made the venture look extremely attractive, and so eventually McDonalds (Canada) eventually bought out the city's shares. Now that the city is no longer enjoying the benefits of this contract, it has imposed a 1.200-fold increase in the rent. Tough luck, Ronald McDonald!
 
To be fair, the rent is still substantially lower than a new venture - particularly a foreign owned one - would have to pay, but it illustrates the Russian government's attitude to contract law. When it comes to legal obligations, they simply don't give a Big Mac. McDonald’s will have to start paying an annual 1,200 rubles(27.7 Euros) per square meter, instead of 1 ruble, for properties on the Arbat and Bolshoi Nikolopeskovsky Pereulok after a court simply cancelled the long-term contract.
 
Starting in 2010, McDonald’s will have to pay the new rate, which is the minimum rent for municipal property in Moscow,a City Hall official said. McDonald’s will likely appeal, forcing the city to continue in court, he added. A spokesperson for McDonald’s in Russia declined comment, saying the company had not yet seen the decision.
 
McDonalds operates 103 outlets in Russia, and the one in Pushkin Square is the busiest in the world. The hidden costs are high, however, and the chain is obliged to take "advice" from the local mafia when it comes to hiring staff.
 
The story might be a little light-hearted compared to way in which major state-owned players in oil and gas are able to break agreements with impunity, but it highlights the pitfalls of doing business in Russia.