|
|
|
Lawletter No. 151 Rent increase upheld A federal appeals court has upheld a rent increase imposed on a dealer in the recent case of John & Kostas Service Station Inc. v. Cumberland Farms, Inc., (1st Cir, 1991, No. 91-1502) 1542 BNA Antitrust & Trade Reg. Rptr. 642. The case illustrates some key points about rental negotiations with oil companies. Facts: The dealer had a Gulf station in Massachusetts. In 1985, Gulf and Chevron merged. Chevron sold all of its Massachusetts stations to Cumberland Farms. As required by the PMPA, Cumberland offered the dealer a franchise, which included a substantial rent increase. Cumberland calculated rents by appraising the property and using a formula based on the appraised value. The company appraised the station at $800,000. The dealer obtained an independent appraisal which set the value at $610,000. He then objected to the proposed rent. Cumberland accepted the dealers appraisal and recalculated the proposed rent. But he still faced a substantial rent increase and refused to sign the new lease. Cumberland nonrenewed the franchise, and the dealer sued under the PMPA. Ruling: The trial court and the appeals court both held that Cumberland had not violated the PMPA. To challenge changes in the franchise agreement, the dealer must show that the new terms were discriminatory, imposed in bad faith, or for the purpose of preventing renewal of the franchise relationship. Except for the differences in the appraisal value of the station, Cumberland used a uniform method of calculating rents. The fact that Cumberland accepted the dealers appraisal was evidence of its good faith. Recommended procedures: Oil companies tend to win most rent dispute court cases. But there may be some room to negotiate. In the John & Kostas Service Station Inc., the dealer got into trouble when he refused to sign the new agreement. But note that he had already had some success in negotiating a lower rent. The following is meant to provide only some very general ideas which might prove helpful. We suggest that you undertake any specific course action with the benefit of legal advice: (1) Requesting review of rent calculation: In a number of cases, dealers have received new leases with rent increases that were unjustified, even by the company's own standards. The fact that the courts have upheld the general guidelines used by the company does not mean that those guidelines were applied properly in every case. (2) Requesting performance of oral agreement: Most oil company lease and supply contracts provide that the dealer agrees that the company has not promised anything that is not specifically mentioned in the written agreements. Where the dealer has increased his volume based on promises of rent breaks, new equipment, etc., he has made an oral contract with the supplier. But that contract is no longer valid if the dealer signs the lease. Instead of signing under protest, dealers have in some cases written a letter to the company describing the agreement and what they have done in reliance on it. Such a letter might ask the company to grant a rental adjustment if it refuses to honor the agreement. The letter might state that the dealer has no intention of refusing to sign. (3) Making a record: A related approach which might incorporate parts of the foregoing is to send a letter asking the franchisor to reconsider its position in light of certain facts, e.g., prior oral agreements, apparent errors in rental calculations, etc. Tell the company in writing that you will sign the agreement if it specifically writes you back and says you must sign the lease as is in spite of the facts you have called to its attention. You can also state that you will give in to the franchisor's demand that you sign the lease without any change in order to avoid nonrenewal. State you will be doing so because you cannot afford to risk loss of your franchise rights. Such an approach can put the company in an awkward position. You have not refused to sign the lease. So there is no basis for a nonrenewal on the grounds of refusal to agree to new terms. It would not look good for the company to ignore your letter. You have not challenged the basic structure of the rent program. But at the same time you have left open the possibility that in the event of a future dispute, you might have the added tool of a claim that the franchisor not only refused to honor its promise, but that it also forced you to sign documents giving up your claim under threat of risking the loss of your business. |
|
|