In my Article in the December 2020 Nozzle & Wrench , I wrote about the options available to a dealer when its franchisor imposes a rent increase that the dealer’s business cannot afford to pay. That article referenced two recent decisions addressing the rent issue (Hopkinton Friendly Service, Inc. v. Global Companies LLC, 2020 WL 5821915 (D. Mass., Sept. 29, 2020); and Four S Shell Limited Liability Company v. PMG Limited Liability Company, 2020 WL 5642190 (D. N.J., Memorandum signed Sept. 22, 2020)). Those cases illustrate how a substantial rent increase can put dealers in the unenviable position of choosing between attempting to survive with higher rent, or dealing with the expense and uncertainty of litigation. Despite the unfavorable outcomes to the dealers in those cases, the Petroleum Marketing Practices Act (PMPA) does provide some protection to dealers against rent increases under certain circumstances. A rent increase imposed by a franchisor may violate the PMPA if it is not the “result of determinations made by the franchisor in good faith and in the normal course of business.” PMPA§2802(b)(3)(A)(i). In addition, if the purpose of the rent increase proposed by the franchisor is to convert the leased marketing premises to operation by employees Rent Increases and the PMPA Brought to you by James L. Parsons, Jr., Lynott, Lynott & Parsons, P.A.
Petroleum Marketing Practices Act (PMPA) does provide some protection to dealers against
rent increases under certain circumstances.
or agents of the franchisor (i.e., conversion by the franchisor to a company operated or commissioned agent store), then such rent increase would be in violation of PMPA§2802(b)(3)(A)(ii). Two examples of rent increase cases alleging violations of the PMPA where courts found that the evidence was sufficient to grant a motion for preliminary injunction in favor of the dealers are referenced below. First, in the case of Tiller v. Amerada Hess Corp., 540 F.Supp. 160 (D.S.C. 1981), several Hess dealers sought a preliminary injunction challenging a new lease proposed by Hess that contained a substantial rent increase and other restrictions on the use of their
premises. The dealers contended that the increased rent and additional restrictions were not done in good faith and in the normal course of business, in violation of the PMPA. In that case, Hess had applied the rent increases uniformly to all of its franchisees, but the court found that Hess had made a policy decision to phase out dealer operated stations. The court concluded that Hess acted in bad faith in attempting to force the dealers out of business
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NOZZLE & WRENCH I DECEMBER 2023
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