NOTE: The following article is from the collection of articles in our Automobile Dealership Buy/Sell Newsletters. The newsletter deals with the complex area of buying and selling automobile dealerships. Some of the material may not be up to date because of changes in the law from the date shown at the end of the article. This article is not to be taken as legal, accounting, tax, or other advice. You should consult your own professionals for such advice and for any updating of the information provided.
The Americans with Disabilities Act (ADA) can have a profound financial impact on the parties to a dealership buy-sell agreement, and failure to address issues involving ADA compliance before the transaction can be extremely dangerous.
One of the most important federal civil rights laws passed in recent years, ADA made sweeping changes in the laws affecting the rights of disabled persons. The ADA, together with the regulations issued thereunder by the Department of justice, prohibits most private employers and providers of public accommodations from discriminating against physically and mentally handicapped individuals. The ADA defines a “disability” as a “physical or mental impairment that substantially limits one or more major life activities” (i.e. walking, talking, hearing, sight, etc.) and it is estimated that there are over 43 million disabled Americans.
The ADA is divided into two primary sections, with Title I of the Act covering employment discrimination, and Title III of the Act covering public accommodations and accessibility to commercial facilities. While the employment provisions of the ADA apply to employers of fifteen (15) employees or more, its public accommodations provisions apply to all sizes of business, regardless of the number of employees.
This article will deal only with the public accommodations section of the ADA, which covers all persons or entities which provide 11 goods, services, facilities, advantages or accommodations” to the public. This section of the ADA requires that public accommodations (including dealerships) be accessible to the disabled. This means that businesses must make reasonable changes in policy, practices and procedures to avoid discrimination against the disabled.
As you will see in the following discussion on the impact of the ADA on existing facilities and new construction, the requirements of the ADA can have a significant financial impact on the operation of a dealership. This is why both buyer and seller must consider these requirements when entering into a buy-sell transaction which will result in the occupancy of dealership premises, whether by lease or purchase agreement. Failure to do so may cause a party to enter into an agreement which can have a profound financial impact on that party’s obligations for ADA compliance without the party even realizing it.
For example, let’s consider a buy-sell transaction in which a buyer will be entering into a lease for occupancy of the existing dealership premises. If the buyer/tenant executes a lease with a standard “compliance with laws provision” in which he agrees to comply with all laws during his tenancy of the property and make any modifications to the property necessary to ensure such compliance, the buyer/tenant can unintentionally assume full responsibility for ADA compliance during the term of the lease, regardless of the cost. Similarly, a seller/landlord may unwittingly become responsible for making costly ADA modifications to the dealership premises by making a warranty in a lease or real estate purchase agreement that the premises are currently in full compliance with all laws when, unknown to him, they are not in fact ADA compliant.
Because of these risks, it is extremely important for both a buyer and seller to perform the necessary pre-closing due diligence (i.e. inspection of the dealership facility by a qualified consultant) so that these issues are fully understood by the parties prior to the closing. The buy-sell transactional documents should be properly drafted by the attorneys so that the obligations of the respective parties after negotiations are completed are clearly spelled out, and the ADA compliance risks are assumed by the proper party.
Likewise, when issues of new construction arise in a buy-sell transaction, whether in terms of making alterations or additions to an existing facility or constructing a brand new facility, the parties responsible for and/or affected by the construction should again perform the necessary due diligence to be sure that the construction contracts and architectural agreements clearly reference and incorporate ADA requirements for new construction in the most efficient and economically feasible fashion. This is especially important because the ADA requirements regarding public accommodations have been incorporated into the California Building Code, which in turn is incorporated into and augmented by local building codes, and thus for practical purposes, a party will only be able to obtain a building permit that is ADA compliant.
Depending upon whether dealing with an existing facility or proposed new construction, differing standards of compliance apply under the ADA. The following are brief discussions of ADA requirements on both existing facilities and new construction.
ADA Impact on Existing Facilities
All public accommodations, including dealerships, are required to remove architectural and communication barriers in existing facilities when such removal is readily achievable. The ADA defines “readily achievable” as “easily accomplishable and able to be carried out without much difficulty or expense,” which is to be determined on a case-by-case basis. Factors to be considered include the nature and cost of the action needed; the overall financial resources of the site or sites involved; the number of persons employed at the site; and the effect on the expenses and resources of the business involved.
When determining whether barrier removal readily accessible, two important points should be kept in mind: 1) barrier removal is an ongoing obligation and should be periodically reviewed, which means that a particular barrier removal which is not readily achievable at the present time may become readily achievable in the future; and 2) in determining whether barrier removal is readily achievable, it is not just the financial resources of the individual dealership which must be looked at, but also the financial ability of the parent company, if applicable.
The Justice Department has provided the following illustrations of barrier removal that it considers generally readily achievable:
-Installing ramps.-Installing grab bars in toilet stalls.-Making curb cuts in sidewalks and entrances.-Rearranging toilet partitions to increase maneuvering space.-Re-positioning shelves.-Insulating lavatory pipes under sinks to prevent burns.-Rearranging tables, chairs, vending machines, display racks and other furniture.-Installing a raised toilet seat.-Installing a full-length bathroom mirror.-Re-positioning telephones.-Re-positioning paper towel dispensers in bathrooms.-Installing flashing alarm lights.-Creating designated accessible parking spaces.-Widening doors.
The ADA also specifies the following priorities which the Act recommends be considered when determining what types of barriers should be eliminated first:
1) Access from public sidewalks, parking or public transportation stops to a building entrance, which measures could include installing an entrance ramp, widening entrances, and providing accessible parking spaces.
2) Access to any areas where goods and services are made available to the public, examples of which include rearranging tables, widening doors, installing visual alarms and installing ramps.
3) Access to restroom facilities, examples of which can include widening doors, installing ramps, widening toilet stalls and installing grab bars.
4) Access in any remaining ways to the goods and services provided.
If a barrier removal is not readily achievable, then the dealership may need to take alternative steps at no extra cost to the disabled person in order to provide easier access for disabled individuals, examples of which include the following:
-Providing valet parking for persons with disabilities.-Providing curb service or home delivery.-Retrieving merchandise from inaccessible shelves or racks.-Relocating activities to accessible locations.
ADA Impact on New Construction
The ADA’s requirements that improvements be made more accessible to the disabled apply to both new construction of commercial facilities, as well as to alterations and additions to existing commercial facilities. The standards applied to alterations of existing structures are less rigorous than those applied to new construction because Congress realized the difficulty in some cases of retrofitting existing buildings.
In the case of new construction of a commercial facility, the ADA requires that any new construction be readily accessible to disabled persons unless the private entity can demonstrate that making the newly constructed facility readily accessible is structurally impracticable. Needless to say, in most cases it will be difficult for the private entity to prove that making a newly constructed facility barrier-free is structurally impracticable.
With respect to alterations, in general the Act requires that alterations to existing facilities be made so that “to the maximum extent feasible” the altered portions of the facility are readily accessible to and useable by persons with disabilities, including persons who use wheelchairs. An “alteration” is defined broadly to include any change that affects or could affect the use of a building or facility, such as remodeling, renovation, restructuring or the making of extraordinary repairs. Examples of an alteration include, but are not limited to: relocating a door; replacing a floor; relocating an electrical outlet; installing or replacing faucet controls; and replacing door handles or hinges. The Act does provide that normal maintenance, re-roofing, painting, wallpapering, asbestos removal or modification to mechanical or electrical systems are not normal alterations requiring compliance with the Act unless they affect the usability of the building. In addition, minor alterations to a building do not require extensive retrofitting of the building. For example, if a facility is undertaking a $15,000 alteration, it is not likely that it would be required to spend an additional $15,000 to make the altered area readily accessible. The applicable guidelines provide that the cost of compliance should not exceed 20% of the total cost of the alteration.
The ADA’s accessibility requirements are set forth in a document entitled The ADA Accessibility Guidelines for Buildings and Facilities, which guidelines are very helpful in determining the architectural designs which meet the requirements of the ADA.
By keeping these issues respecting ADA compliance in mind, the parties to a buy-sell transaction involving the occupancy of a dealership facility, whether to be occupied in its existing condition or modified by new construction, can minimize their risks and better protect their financial interests.
This article was written in 1997.