|
|
|
From California Lawletter No. 167 Use restrictions in service station leases One of the more troublesome areas of concern for service station dealers in recent years has been the provisions of dealers leases restricting the uses of the property. Most major oil company leases contain such clauses. One of the more serious mistakes made by many dealers is to fail to take disputes with the company over such clauses seriously. As a general rule that the law permits an owner of real property to restrict the use of that property by the tenant. On the other hand, the federal Petroleum Marketing Practices Act forbids discriminatory or retaliatory enforcement of such clauses. Examples of typical use restrictions: The typical dealer lease contains prohibitions against some or all of the following: •Parking, rental or sale of new or used vehicles; •Storage of junked or disabled vehicles; •Installation of coin operated devices; •Sale of non-automotive goods and services; •Blocking pump islands; and •Display of unauthorized signs. You lease may also contain additional restrictions. Effect of Petroleum Marketing Practices Act: The PMPA provides that a franchisor may not base a franchise termination or nonrenewal on the dealer's violation of the lease or supply contract unless the contract or lease clause involved is both "reasonable" and "material." However, this language can be misleading. In the court decisions to date under PMPA , judges have shown a great reluctance to prevent an oil company from enforcing such lease clauses. For example, it has been specifically held in several cases that an oil company may enforce lease clauses prohibiting the storage of junk vehicles or the sale of alcoholic beverages on the premises. Drazin v. Amoco (D.D.C. 1981), CCH Bus. Fran. Guide, para. 7629; Grieco v. Mobil (E.D.N.Y. 1982); Zekler v. Atlantic Richfield Co. (No. 83-5905, CA 3, 8-17-84) It therefore could be very dangerous for a dealer to continuously violate his lease if the company continues to protest the violation. There is some authority for the proposition that an oil company may not enforce lease clauses in a retaliatory or discriminatory manner. This is one reason why we strongly advocate keeping good records of threats involving retail pricing or TBA purchasing.
Recommended procedures: We therefore recommend the following procedures in this area: (1) Review lease provisions: Anytime that you receive any indication from your supplier that anything you are doing at the station is prohibited by your franchise agreement, carefully examine the relevant provisions of your lease. Since in some cases, matters of legal interpretation may be involved, you may wish to consult your lawyer if you have questions. (2) Default notices: Do not ignore repeated written default notices from your franchisor. This is possibly the single biggest mistake made by service station dealers when dealing with their legal rights and obligations under franchise agreements. At the very least consult with your attorney. (3) Important business practices: If you receive even one default notice for a practice which is essential to your business, you may want to seek legal advice right away. There are a number of reasons for this. For example, when you originally took over your station, you may have been told verbally by company personnel that it would be alright for you to engage in a particular practice, such as trailer rentals. Such a statement from a marketing rep. or manager may raise a serious issue as to whether the company has "waived" or given up the right to prohibit the practice. However, dealer leases typically contain clauses superseding or voiding any oral agreements or representations. The next time you sign a renewal of your dealer lease, the oil company may assert that you have given up all rights based on what you have been told. The only prudent way to deal with such risks is to seek legal advice as soon as you realize that there may be a problem. (4) Diary threats: Keep careful records of any threats to retaliate against you if you do not follow company pricing suggestions or purchase company TBA. Furthermore, keep records of any situation of which you are aware in which the company does not enforce a lease clause for which you are receiving default notices for violating. If you believe that there is some possible basis for a discrimination defense, consult your lawyer.
|
|
|