Terms of the Deal
Merchants who lease or buy gas stations from DeLand-based Delco Oil complain that terms of the deal put them at a disadvantage. Delco officials say their terms are common throughout the industry and necessary to protect their interests.
RIGHT OF FIRST REFUSAL:
Merchants sign five-year leases to run gas stations and convenience stores, but Delco may at any time give them 30 days to match a third-party offer to buy the properties or "forfeit any and all right, title and interest in and to the leased premises" with no compensation.
If a leaseholder refuses to leave after failing to match such a third-party purchase offer, Delco will charge up to 10 times the normal rent as liquidated damages.
FEDERAL PROTECTIONS WAIVED:
Because leaseholders buy and sell gas as commission agents for Delco and do not control gas prices, they are not considered franchisees. They must waive the right to receive 90 days notice of eviction under the federal Petroleum Marketing Practices Act.
LONG-TERM SUPPLY AGREEMENT:
Leaseholders who buy their properties must agree to buy gas only from Delco Oil for at least 15 years.
A leaseholder who opts to buy the property and later sells the gas station must pay Delco $10,000 to transfer their fuel supply agreements to the new owner.
Immigrants pursuing their American dream sign long-term leases
for gas stations, then live in fear of being told...
Buy It or Lose It
First-place winner, Business Reporting, Mid-Florida Chapter of the Society of Professional Journalists 2003 awards
Published in The Daytona Beach News-Journal on July 27, 2003
They make their living selling six-packs of beer, soda and generic cigarettes.
They work their wives and kids and eat family meals behind displays of lottery tickets and headache powders.
They seldom speak fluent English.
And they live in fear of a single sentence: "We have an offer to buy your store."
Dozens of gas station and convenience store operators such as Nath Joshi and his wife, Varsha, came to Volusia and Flagler counties in search of better lives than they had in such places as Bangladesh, Sri Lanka, Pakistan and India. But what first seemed like a great opportunity later felt, for some, like a trap.
The Joshis, from Bombay, India, are being evicted from their store in DeLeon Springs, four years into a five-year lease, because property owner Delco Oil decided to sell it, and the couple can't raise $350,000 to match a purchase offer Delco solicited from a third party. They've hired a lawyer to fight the eviction.
"What I have in my life now is all in this business," Nath Joshi says. "If I lose that, I don't have anything."
The Joshis aren't alone. Across the nation, foreign merchants work from dusk to dawn, like modern-day sharecroppers, in stores they don't own, selling gas at prices they can't control, at the pleasure of large and small oil distributors who can force them out at will by invoking lease clauses to which few experienced business people would ever agree.
DeLand-based Delco Oil says all of its stores are up for sale & it owns more than 50 & and five brokers are looking for buyers. The clock is ticking for the rest of the company's merchants, even though they hold long-term leases.
If the company has its way, the merchants will get letters telling them they each have 30 days to make a decision: Raise hundreds of thousands of dollars to purchase their properties & with expensive strings attached & or walk away with nothing but the inventory they own.
The buy-or-leave ultimatum is allowed under the company's lease contracts.
And it's perfectly legal.
The Joshis have run their gas station for the past two years. In 2001, Nath Joshi says, he left a good-paying job in California as a financial consultant, moved to Florida and bought the store keys from his brother-in-law for $115,000.
Since then, Joshi and his wife have worked at the store 18 hours a day, seven days a week. After paying rent, credit card charges, and taxes, they clear about $1,000 a week, Nath Joshi says.
"I don't have time for my children. I can't take my son places he'd like to go," he says.
Meanwhile, Joshi and other merchants complain that Delco is slow to fix broken gas pumps, lights, nozzles and hoses, and too often allows their gas tanks to sit empty. Delco officials respond that the problems are usually merchants' faults.
The decision to move here "was the biggest mistake of my life," Joshi says.
In May, Delco sent the Joshis a letter telling them they had 30 days to exercise their "right of first refusal" to buy their store. After the 30 days ran out, Delco sent them an eviction notice and told them they'd be charged triple the normal rent if they stayed and contested the eviction. The couple and their attorney are preparing to fight.
Similar stories unfolded this year when tenants were forced to walk away from Delco stations in Sanford, DeBary and DeLand. In Bunnell, Muhammad Tariq and his wife await formal notice that their store is being sold. A Delco real estate broker has told them to get ready.
"My blood pressure is high," Tariq says. "I've been fighting with my customers and with my wife because it makes me so upset because I paid a lot of money to get this business."
Anis Ahmed has run Delco-owned stations in Edgewater and DeLand since 1996. In May, he bought the properties after a Delco broker told him "10 to 12 times" that he'd sell the businesses to someone else if Ahmed failed to buy them, he says.
People born outside the United States now run more than 90 percent of all gas station-convenience store combinations in the country, industry experts say.
A growing number are locked in perpetual battles over shrinking profit margins with gas distributors & or "jobbers" & who either own gas station properties outright or sell gas to individual stations under long-term agreements. The operators are often naive in the ways of American business, and don't hire lawyers to review contracts.
Operators who lease their stations enjoy little leverage over their oil distributor-landlords, according to Pat Moricca, president of the Florida Gasoline Retailers Association. By designating merchants not as gasoline franchisees but as commission agents, distributors circumvented federal laws imposed in the 1970s that made it harder for oil companies to evict merchants, he says.
Delco at least gives merchants an opportunity to buy their properties. Other companies insist on leases they can cancel with 30 days notice, no questions asked, Moricca says. "They can come in and say, 'We don't like you, and you're out.'"
More and more immigrants are losing under the system's current setup, Moricca says.
"A lot of foreigners came into our country & it's not that they're bad people, but they trusted the distributor: 'Don't worry, sign it.' It looks good on paper, but it doesn't turn out that way. It's a process going on now that's destroying families.
"It's hard to say it's a racial or ethnic thing. It's hard to say it's an immigration thing. This is what's happening. More of them are getting into the business and they can easily be swayed."
OWNER: 'I FIGHT TO SURVIVE'
Delco Oil is one of the most powerful jobbers in Central Florida. It's also one of the most feared, according to current and former gas station merchants.
The merchants warn each other not to cross company owner Stephen B. DeLuca. Court records are littered with accounts of those who challenged him & and lost.
In Volusia County alone, DeLuca or his companies have been sued 68 times and filed 83 suits since 1990.
Eighteen suits are winding their way through the court system now, according to records maintained by the county Clerk of Courts. They include disputes over a land purchase, a fuel delivery bill, evictions, gas pumps, rent charges, credit card charges, property taxes and retail signs. Opponents include former leaseholders, the state Department of Environmental Protection, former oil distributor William Scovell and the Shell Oil Co.
Because Delco often settles claims out of court, there's no way to know how many the company has won and lost. But court records show Delco has paid hundreds of thousands of dollars in damage claims.
In 2002, the company was ordered to repay a $10,000 down payment for a gas station purchase that was never completed.
In 1999, it paid a $139,367 judgment to a pump island installer that Delco had fired a year before.
In 2000, DeLuca spent $2,000 fighting a $500 claim that an employee with a front-end loader totaled a pickup on a lot Delco was preparing to purchase. He lost.
"If I'm guilty of anything, I fight," says DeLuca, a former semi-pro football player. "I fight with the county. I fight with the state. I fight with my dealers. I fight with whoever, because that's what I've had to do to survive."
Many of Delco's leaseholders are fighting mad as well. They complain that DeLuca exploits them by failing to make timely repairs & as required by their leases & to gas pump islands and gas station buildings. Sometimes Delco fails to make timely gas deliveries and leaves them dry for weekends at a time, they say.
Under the commission-agent setup, leaseholders keep 4 cents for every gallon of gas the station sells. While leaseholders make most of their money on sales inside the stores, their ability to sell cigarettes, beer, coffee or chips depends on having working gas pumps outside the stores.
DeLuca blames leaseholders for the shortcomings. When their gas tanks run empty, it usually means they've failed to report how much they've sold, he says, because they held onto money that should have been paid daily to Delco and was instead used to stock up on store inventory.
When pumps sit broken, it's because leaseholders failed to report problems or make minor repairs themselves, DeLuca says.
"I resent (the suggestion) that we who make all of our income on the sale of gasoline would intentionally leave pumps down. It's illogical," he says.
Of his more than 50 leaseholders, DeLuca says, many fail to report problems with the pumps "because they're so damned lazy.
"They don't even wash the pumps. They are just lazy. Why don't they empty their trash cans? Why don't they pick up the property around their stores? ... Why don't they use deodorant?"
Still, state inspection records reveal gas pump problems at some Delco sites.
Of 18 local properties monitored over the past year by the state Department of Agriculture and Consumer Services, inspectors discovered inactive nozzles at 10 sites. Of those 10 sites, seven had six or more nozzles down on the days they were first inspected.
DeLuca acknowledges that the company has faced challenges keeping pumps operating, including lightning strikes, salt air damage and financial problems at the company that makes most of Delco's pumps.
WORK HARD, LOSE STORE
Immigrants from South Asia say they're attracted to the gas station business because it beats working for hourly wages.
Companies such as Delco Oil make it easy to get involved. Business leases generally cost about $100,000, but some merchants have been allowed to finance their down payments in part by pledging monthly gasoline sales commissions.
Operators essentially buy their jobs. Usually strangers to the country, they're willing to gamble that they'll get to work for a few years before the jobber invokes the lease clause giving them 30 days to buy their properties or walk away with nothing.
"If you do this for four or five years, you can get pretty good capital together then do whatever you want," says Hershel Patel, operator of a Flagler Beach gas station and convenience store not owned by Delco Oil.
But the desperation some feel to get into the business often blinds them to the clause that can end it all, Patel says.
"A majority of people who sign all this stuff don't know what they're getting into until it actually happens," he says.
Here's the catch: The harder a merchant works to build up his business, the more attractive the location becomes to outside buyers. So when a jobber finds out how successful product sales inside the store have become, the price to keep a third-party buyer from capitalizing on the leaseholder's efforts goes up, merchants say. So some try to conceal the actual sales figures from the jobber, Joshi says.
When a Delco real estate broker told Ahmed he was trying to sell the two stores he operated, Ahmed faced a tough choice:
Agree to purchase the properties, or step aside, retaining only the inventory he owned in the stores.
DeLuca says he decided a year ago, on the advice of a financial consultant, to put all of his gas stations for sale and concentrate on his wholesale distribution of gasoline and petroleum products. He's sold 14 properties since July 2002, according to attorney Alex Ford.
All leaseholders were told that their stores would soon go up for sale, DeLuca says.
Yet, Joshi and Tariq say that news came as a surprise.
Prospective buyers came to look at Tariq's place several months ago, he says. "They said, 'Your store's up for sale.' I said, 'What are you talking about?' They said, 'Call Delco.'"
DeLuca says he's "bending over backwards" to help his merchants who want to buy their properties. He says he's held second mortgages for some buyers with mediocre credit ratings. He's required third-party buyers to purchase the inventory of leaseholders who were being forced out of their stores, so they're not left penniless, he says.
Even if he has a third-party offer for a business, DeLuca will help a leaseholder buy the property at a lower price to avoid a lengthy and expensive eviction suit, Delco attorneys Ford and Darren Elkind say.
Merchants say they pay a steep price for DeLuca's benevolence. In exchange for DeLuca's flexibility on property purchases, they must agree to purchase Delco gas & and only Delco gas & for 15 years.
Ahmed contends that Delco's wholesale prices run 6 to 7 cents higher than nearby competitors. Because he cannot charge more than competitors, he clears just a penny a gallon, he says.
DeLuca says his wholesale prices are competitive. Operators who own their stations set their own prices, and thus, control their own profit margins, he says.
Another condition of Delco's sale to Ahmed requires him to pay the company a $10,000 fuel-supply transfer fee if he ever decides to sell the newly acquired properties.
"They will screw you every chance they get," he says.
DeLuca says the fee covers the costs associated with checking credit histories and business backgrounds of new customers, plus other red tape associated with transferring accounts.
Although terms offered to gas station leaseholders may seem strict, distributors say they provide opportunities that few immigrants with modest incomes can get anywhere else.
"It might not be the best or most advantageous terms, but it's an opportunity many people are happy to (take)," Elkind says. "And it's a contract they choose to enter into."
Jim Smith, executive director of the Florida Petroleum Marketers and Convenience Store Association, says "it's clearly easy to understand why someone would think it isn't right" for distributors to force merchants out after invoking the buy-or-leave clause midway through their lease terms.
"But it's standard throughout the industry," he says. "It happens every day."
BLAME FALLS BOTH WAYS
DeLuca and other distributors say foreign-born operators often bring problems onto themselves.
While cultural differences can put South Asians at a disadvantage when doing business, some try to exploit those differences to their favor, the distributors say.
Some play fast and loose with surnames to stymie creditors' efforts to find them, says Brian Chamberlin, vice president of Clay Oil, a Delco competitor based in Jacksonville. "There are many different names that the Muslims will take that weren't their original names," he says. "Muslims will take names like Mohammed and still have their given name."
In Northwest Volusia, a partnership of four brothers who all go by the same Muslim name are trying to purchase a group of gas stations. When applying for a bank loan, "they tried to pick the one with the best credit and (all of them tried to apply) under his Social Security number," DeLuca says. "And the bank caught them."
"Keys" to stores are frequently sold, traded or bartered among merchants but no one puts anything on paper because distributors typically charge thousands of dollars to transfer leases. Delco's transfer fee is $10,000. DeLuca and Chamberlin say they frequently discover the person running a store isn't the person who signed a lease.
"We may get a call from someone saying, 'I'm your new customer,' and we weren't aware there was a sale," Chamberlin says.
For example, Nath Joshi's name isn't on his station's lease, but he holds power of attorney from the corporation that sold him his keys. Joshi contends his arrangement shouldn't concern Delco as long as he continues honoring terms of the lease.
Some leaseholders involved in contract disputes admit they got in trouble because they didn't read their leases carefully, didn't pay lawyers to review their leases, or were too quick to trust the words of previous
leaseholders, including friends and relatives, eager to get out from under their own bad deals.
Edward Hanna, a former Delco leaseholder from Ecuador, says he accepted Delco's word that everything was in working order at the Daytona Beach site he leased in 2001. He says he immediately discovered problems with the pumps. Delco says they worked when Hanna signed the lease. The problems triggered a series of conflicts that ended with his eviction a year later. "I trust people. That's a problem," Hanna says.
Many mistakenly believe that what's in the contract matters less than what they negotiate by handshake after the contract is signed, Chamberlin says.
Margaret Fung, executive director of the Washington D.C.-based Asian American Legal Defense and Education Fund, says recent immigrants don't always know how to avoid entering into contracts that more experienced businesspeople would refuse to sign.
She urges immigrant businessmen to enlist advice from attorneys or consultants & preferably ones who speak the immigrant's native language.
Joshi wishes he could take that advice today. He blames his mess on his brother-in-law, who he says failed to tell him about the buy-or-leave clause when he sold Joshi his key to the store. He's ready for his day in court to fight the eviction. He's confident a judge will agree with his contention that the buy-or-leave clause is "unconscionable."
"I'm a true follower of Gandhi, who said, 'You fight for the truth. Even if it's the scare of your life. You don't give up,'" he says.
DeLuca, the fighter, is asked to name gas station dealers who would speak in praise of him and their treatment by his company. Of 71 stores between Jacksonville and Orlando that he either owns or supplies, he names three & two in Orlando and one in Lake Helen.
"Should I be doing it differently?" he asks. "Perhaps. Maybe I will. But, I'm guilty of fighting. That's all I'm guilty of."
Copyright, 2003, The News-Journal Corporation