is general counsel & executive director of the National Congress of Petroleum Retailers. It is not my intention to speak to any specific language which franchise competitive practices legislation should contain even though some suggestive ideas are included in my testimony. I leave this area to Mr. Snow and others who are more qualified to make suggestions along these lines. It is my hope that I can focus your attention upon the true and present status of lease security for the gasoline retailer in the State of Georgia. I hope to communicate to you how, in practice today, short term leases between suppliers and retailers are used by the suppliers to manage, to control, and undermine the very foundation of free enterprise principles and to thus cause economic hardship and bring dealers to financial disaster-notwithstanding the language of the lease or laws applicable on some issues to the contrary reserving those rights being interfered with to the retailer. Personally observing for 11 years the problems of the service station dealer operating under terms of leases which have been and which are used today, it is very clear to me that lease security legislation is badly needed to give minimum protection to the small businessman who operates under a franchise with a major oil company, a corporate giant. What rights do service station dealers have to stay in business and be freed from the pressures which are being imposed by their landlord-suppliers? This committee is respectfully urged to ponder this question seriously and in doing so to consider the financial responsibility and risk which the dealer assumes under today's lease, and who under his own power, initiative, dedication, and drive develops a going business only to find 5, 10, or more years of hard work and financial investments washed away by a 30 day notice to vacate the premises even though he has complied with the terms of his lease and is operating a retail business which consumers desire to patronize in sufficient strength to result in a satisfactory personal income. Now to some specifics. Last week a long-time member of GAPR, a Shell dealer by the name of R. A. Davies of Savannah, Geo., filed a complaint with us. Mr. Davies' continuous experience as a service station dealer dates back to 1928 except for a short period during the 1940s. His lease, his letter of cancellation and GAPR's letter to Shell Oil Company on behalf of Mr. Davies are attached and identified as exhibits 1, 2, and 3 respectfully. We ask that they be received as a part of this testimony. An examination of these exhibits at the convenience of the committee will give full particulars. I will summarize the situation for you at this time. Shell Oil apparently found no violation of the convenants or conditions of the lease for article 9 of the lease (exhibit 1) sets forth the procedure they would follow in case of any violation. No notice was received by Mr. Davies other than the letter of cancellation (exhibit 2). The matters which were brought to Mr. Davies' attention by Shell's representatives concerned (1) retail price at which he was selling gasoline, (2) the giving of premium stamps (3) the handling of used tires for resale and (4) the performance of certain automotive repairs on the premises. The first three items are unquestionably not in conflict with the terms of his lease. The fourth item, had it not been for certain other conditions which are explained in the full contents of exhibit 3 could have been in violation of his lease covenants but was not under the circumstances. It was only after Mr. Davies failed to permit Shell to interfere with his pricing decisions that Shell began to protest about the repair service conducted on the premises. Paragraph numbered (1) in exhibit 3 illustrates a need for more lease security for it outlines the use of unfair business practices and the element of threat to cancel the lease, a threat carried out by the supplier in Mr. Davies' case. Even though having complied with the terms of his lease, having successfully developed a following of regular customers in a highly competitive industry and location, Mr. Davies is facing a giant corporation which can and from all indications intends to put him in the street without just cause, without recourse under law to protect that which he has developed at his own liability and risk of financial loss as well as at a great personal sacrifice. Should not a small businessman like Mr. Davies be provided with a means to recover damages in case of cancellation of a lease which he has lived up to? Surely the legislation now being considered should include protection and recourse for these small businessmen against such reprehensible acts. On Friday, October 6 of this year, I received a phone call from Rome, Ga., from Mr. Dan Roberson, another Shell dealer. He related to me how his supplier had put him on a month-to-month lease and how within the hour a representative had been in his station threatening lease cancellation even though no covenants or conditions of the lease had been violated, according to Mr. Roberson. This dealer expressed belief that the only reason he was being threatened was relative to TBA pressure brought to bear upon him because of Shell's demands that he buy TBA through them instead of directly from Firestone whom Shell bought from, and because he refuses to give premium stamps. Neither of these subjects are relative to violation of terms of the lease but both may be unlawful activity by the supplier. As long as landlord-suppliers can issue letters of cancellation of leases without any provision for safeguard or for recovery for damages provided the retailer for unjust treatment by termination of a lease unsupported by fact relative to lease covenants and conditions, the retailer will continue to be unfairly treated. I see no hope for voluntary correction of such practices by suppliers because major suppliers will continue to be naturally volume hungry for in greater volume there is greater profit for them. We badly need lease security for small business franchise operators against such abusive practices and we believe it is in the public interest that legislation with strength be enacted to meet head-on this objective. Another recent case, June of this year, is relative to the subject being considered at this hearing. It concerned a Texaco dealer who failed to comply with oil company suggestions about the retail price at which he was selling gasoline and it concerned the giving of premium stamps. Exhibits 4, 5, and 6, attached, are desired to be entered as testimony at this hearing. They consist of certain letters from Texaco to Mr. Everett Cummings, the dealer, and a letter by GAPR to Texaco on Mr. Cummings' behalf which resulted in reconsideration by Texaco and the granting of a new lease. Mr. Cummings is in business today—but not without bowing to demands for giving stamps to his customers. With his life's savings invested, about $8,000, in stock and equipment, and almost a year at very poor personal income he felt he must have more than just 1 year to recover and develop a sound business operation or he stood to lose a large sum. Therefore, when Texaco decided to reconsider he was afraid to say no about the stamps. Here again is a story of fact, not fiction, where a retailer lived up to the terms of his lease and yet was canceled without justification. Even though Mr. Cummings had proved to himself that stamps were a drain on his net profit he fears reprisal of lease cancellation even now if he should discontinue them. Strong protective legislation is deserving of your consideration if such practices are to be stopped and qualified service station operators like Mr. Davies and Mr. Cummings are to be available to meet the needs of motorists. To be enticed and misled by advertising of major oil companies, such as is conducive of the advertisements included in this statement as exhibit 7 and requested to be accepted into testimony, to "Be Your Own Boss" as the ad suggests and to then make the financial investment, devote the long hours necessary to operate a business like this, and, after assuming the liability under the risks which must be taken, it is then unconscionable treatment by the supplier to cancel the lease when no covenants or conditions of it have been violated and even if violated without first complying with the provisions of the lease to remdy same. The preservation of our free enterprise system would seem to hang in the balance if such practices are condoned by failure to enact protective legislation for small businessmen such as the gasoline retailer. In August of this year 112 Georgia Texaco dealers complained through a petition about a property rental increase. The petition and Texaco's reply to the petition are attached and marked as exhibits 8 and 9. They are asked to be entered as a part of this testimony. Many of the dealers who signed the petition and others who did not sign it have not signed leases for the payment of higher rent and are now operating under the holdover clause of the old lease-a 30 day lease (reference to exhibit 4). It is not so much the rental increase, even though the dealers do not feel it is justified, but it is the company's attempt to squeeze the higher rent out of the dealer's present margin that is objectionable. Texaco did not and has not at this date adjusted suggested retail prices to compensate for the increased operating cost which Texaco is attempting to impose. Some dealers, fearful of losing their business, signed the new leases and are already paying the higher rent. Several have reported they cannot survive if they continue to pay the higher rent unless the retail price is adjusted to compensate for it. Without company sanction of raising the retail price many dealers fear the loss of their leases even though they realize they would not be violating any covenants or conditions of it. It is my humble opinion that a landlord-supplier should be prohibited from setting suggestive prices or discussing prices at which the product is to be sold with retailers because they are in a position to cause economic hardship by changing the operating cost of the independent lessee retailer. The landlordsupplier's control over retailers can be generally removed if some protective means is provided the retailer against retaliation by the supplier by cancellation of his lease without just cause, that is, without justifiable cancellation because of violation of the covenants and conditions of the lease itself. In February of this year an American Oil dealer, Mr. Harold B. Curtis of Atlanta, called upon GAPR to examine his lease and to advise him about certain proposed changes which his supplier desired him to accept. A copy of the letter dated February 13, 1967, to Mr. Curtis from GAPR is attached as exhibit 10 and we desire it to be entered as testimony. Attached to this exhibit is a copy of the company assistance program agreement which the letter more particularly concerns. I call the committee's attention to the observations expressed to Mr. Curtis by GAPR in item 4 in the letter and then to the next to last paragraph of the letter which reads: "Under no circumstances would I suggest you go under the company assistance program agreement. It appears to be an instrument to let you take the liability and risk while the company dictates what to do and how to spend your money." I submit to you that the controls attempted to be imposed upon Mr. Curtis under the language of the company assistance program agreement are imposed today on Georgia dealers because of short term leases and the complete freedom of the landlord-supplier to cancel a lease or to refuse to renew a lease without having to justify his action to the dealer or anyone else. Sinclair dealers in Macon, Ga., reported during the past month that they had refused to extend hours of operation nightly and Sundays and were told by Sinclair representatives that had to or would have to vacate the premises. Two walked away from their stations last week following cancellations of their leases advising GAPR they did not want to fight back. Financially, they said, they could not afford to jeopardize what they had and that while the supplier would help them sell out stock and equipment they agreed to leave. Another advised that Sinclair slipped up on the time required to cancel his lease which automatically renewed itself year to year except when notified at least 30 days prior to the renewal date. He says he is extending some hours but may face cancellation next year for not going all the way with their request, even though he is complying with the terms of his lease. Gulf Oil Company only recently put the squeeze on some of their dealers about longer hours and about getting competitive on price. Exhibit 11, a copy of which was sent to Gulf by cover letter dated June 16, 1967, gives more details and was the basis for a letter from Gulf to GAPR also attached as exhibit 12 in which Gulf admits they discuss hours and price with their dealers. Exhibits 11 and 12 are requested to be entered as testimony. Does this not substantiate dealer complaints that short term leases and the right to cancel that lease without regard to full compliance with the terms thereof lend force and inject pressure upon dealers to comply with all supplier requests or advice so as to stay in business? Even as this testimony was being prepared a telephone call to my office from Augusta, Ga., a Mr. C. A. Clark, an Enco dealer advised he had a letter in hand of cancellation of his lease. Mr. Clark advised that the only reason he could find for cancellation was "failure to follow company suggested prices." Our director who is in business in Augusta confirmed that his investigation indicated no other reason could be found and asked that I come to Augusta to see what help I could be to Mr. Clark. Mr. Clark asked earnestly "Don't we have some protection when we live up to our contract terms and the only thing we are guilty of doing is the exercising of our lawful right to sell a product at a price we determine necessary to operate at a profit?" I told Mr. Clark I would toss this question to this committee and I am asking you to answer this question by developing legislation that can guarantee dealers like Mr. Clark some safeguard against unfair termination of a lease. Following 16 years as partners in a Shell station at the same location E. B. Green and J. C. Presley of Atlanta lost their lease when unreasonable demands were made by Shell as a condition for renewal of their lease following com pletion of a rebuilding of the station on the same piece of property they were on. What were the demands made on these well qualified and successful top flight dealers? They were: (1) 24 hours operation; (2) must give S & H stamps; (3) discontinue cut-off point on rent; (4) invest $22,175 in stock and new equipment for the new station; (5) must reach volume of 85,000 gallons a month in the new station as rent at 14 cents a gallon on 85,000 gallon would be due. The Green & Presley station was located in and near heavy business and residential areas. Traffic after present operating hours would not support operating cost for extended hours as proven by them during previous trial of longer hours. Green & Presley gave S & H stamps a number of years but gave them up in December 1966. Experience had proved to them that net profit was better without stamps and that they were better able to service their customers more speedily without stamps to bother with. They did not object to paying more rent for the new station facilities but felt this should have been a matter of negotiation before rebuilding the station. They advised they had about $8,000 in stock and equipment in the old station and felt a demand to invest $22,175 in the new facility was unreasonable and not necessary to meet the needs of their customers and those they hoped to attract, especially was such an investment unreasonable in view of the fact that they would have only a 1 year lease on the new station. Their present monthly gasoline volume ran about 44,000 gallons and they felt a projection of rental to be based on attainment of 85,000 gallons a month was unrealistic and was impossible in light of their experience and knowledge gained from many years of operating in that location. To further substantiate the claim of enticements used by the major oil companies to get dealers to take stations on leases we are including in our testimony exhibit 13 which is the booklet prepared by Shell Oil Company for the specific location of the Green & Presley station which booklet was submitted to these operators as if they were ignorant of the industry and actual operating problems and profitability of the station. Green & Presley turned thumbs down on the demands and the attractive salary of $3,072 a month net profit potential Shell says is available at that location. They now operate separate stations nearby of another major oil company. We do not dispute the fact that a company leasing a piece of property should have certain rights. We do challenge the freedom which they do now have which is being exercised frequently and robs small businessmen of their life's savings and washes away valuable goodwill developed over a long period of time, all without any safeguard or recourse provided the dealer. Surely, there is or should be some obligation on the part of a party who entices another to invest his life savings and 70 to 80 hours a week 7 days a week to continue the lease for as long as the covenants and conditions of the lease are not violated and the lessee desires to continue the lease, unless the lessor can satisfy a court of law that either lessor has lost control of the property or that lessor will not continue to use the property for the same purposes as was described in lessees' lease. Gentlemen, I have delivered to you the status of leases between major oil suppliers and retailers by citing examples. With more time I could have presented to you a very substantial number of equally serious unfairness by suppliers in their dealings with dealers. What I have reported are representative of the problems of Georgia gasoline retailers. I would be privileged to answer any questions you may have about conditions with those I represent in Georgia. To conclude my formal statement I would like to say that from personal knowledge and experience derived from the fulfillment of my responsibility, it is a fact that service station dealers operating under leases with their supplier-landlords are being denied competitive opportunity, they are being discriminated against, they are being interfered with as to management and control of their businesses, and that they are being taken advantage of by their landlord-supplier lessors. These small businessmen are in great need of protective legislation that will block the rampant practice of canceling their leases without just cause. Cancellation of a lease, in my opinion, should be actionable when practiced under such circumstances as illustrated in examples which I have called to your attention. On behalf of Georgia and the Nation's dealers I ask you to provide a remedy for the serious malady of our segment of the oil industry and for other small business in other industries who have similar problems. Thank you for your attention to this testimony. 89-151-68 at Georgia....... (herein called "Lessee"): 1. LEASE. Shell hereby leases to Lessee, and Lessee hereby leases from Shell, the automobile service station premises located 7921 White Bluff Road Georgia County, Chatham Savannah including the land there owned or leased by Shell, to the extent now occupied and used for automobile service station purposes, and the buildings, improvements and equipment now comprising the service station on the land (herein collectively called "Premises"). Lessee acknowledges receipt of the Premises in good and safe condition and repair. November 1 ..... 66 19......... and ending on 2. TERM. The term of this Lease shall be a primary period beginning on :tober 31 67, and from year to year thereafter, but may be terminated by Lessee at any time by giving Shell at least 90 days' notice, and by Shell at the end of the primary period or of any such subsequent year by giving Lessee at least 30 days' notice. 19. 3/2 1 35,000 No- 3. RENT. Lessee shall pay Shell, as rent for each calendar month, a sum equal to one and one-half 25,000) gallons; one No not less than....no minimm cent(s) cent(s) Thirty-Five Thousand .) gallons through <) per gallon for each gallon in excess of ...) gallons, of motor vehicle fuel delivered to the premises during such month, but: ($..... 00.00 ) for any calendar month (prorated for any period less than a month). one and one-half The rent shall be payable in installments, each at the time of each such delivery; and equal to cent(s) (11/24) for each gallon of such delivery. Not later than the 15th of the following month, Lessee shall pay Shell any deficiency of the aggregate rent so paid, from the minimum rent for the month, or Shell shall credit to Lessee's account any excess thereof over the total rent for the month. Lessee shall keep, and permit Shell to inspect on demand, an accurate record of all motor vehicle fuel delivered to the Premises. Three Hundred and Ho/100 4. SECURITY. Shell hereby acknowledges receipt from Lessee of the sum of Dollars ($.300.00 ........) as a non-interest bearing deposit (which may be mingled with Shell's other funds) to secure Lessee's. erformance of Lessee's obligations under this Lease and the payment of any indebtedness of Lessee to Shell, whether under this Lease or otherwise. Shell may, from time to time, apply all or any part of that sum to the payment of such indebtedness; and upon Shell's demand, Lessee shall deposit with Shell additional sums equal to those so applied. Within a reasonable time after termination of this Lease, Shell shall return to Lessee any unapplied balance of the sums deposited by Lessee hereunder. 5. USE. The Premises shall be used only for the operation of the automobile service station, including the retail sale of petroleum products, accessories, and minor repair services for motor vehicles; and the station shall be kept open for the sale of such products by Lessee at least from exceptions A.M. to P.M. each day, no Lessee shall comply with all Federal, State and municipal laws, ordinances, regulations, orders, licenses and permits relating to the Premises, to any use thereof or to any activity thereon. Lessee shall pay all charges incident to Lessee's use of The Premises or the business conducted thereon, including all license, permit, occupation and inspection taxes and fees, all water, gas, electricity, telephone and other utility charges (all meters and accounts for which shall be in Lessee's name), and all taxes on Lessee's property on the Premises; and if Lessee fails so to do, Shell may pay such charges and charge the same to Lessee. Lessee shall not make any attachments or additions to, or any structural alterations of, any building on the Premises, or construct any additional buildings. or structures on the Premises, without Shell's prior written consent. No intoxicating beverages shall ever be sold or otherwise disposed of on the Premises. 6. ASSIGNMENT-SUBLEASING. Lessee shall not assign or mortgage this Lease, or sublease, or permit any other person, firm or corporation to occupy or use, all or any part of the Premises, without Shell's prior written consent. ARTICLES 7 THROUGH 13 ON THE BACK HEREOF ARE PART OF THIS LEASE. EXECUTED as of the date first herein specified. RA Wavies "Lessee" SHELL OIL COMPANY By.... |