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.
In the Winter 1997 edition of Dealer Buy-Sell, we summarized the Americans with Disabilities Act (ADA) and the significant financial impact that it can have on the parties to a dealership buy-sell agreement. It has come to our attention that several California dealerships have recently been sued by private parties for failing to comply with ADA requirements and therefore we have decided to reiterate some of the important facts about ADA compliance in light of these private party initiated ADA lawsuits.
Title III of the ADA requires that all 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. While the financial impact of ADA on existing facilities is somewhat different than the impact on new construction, the impact can be great and should not be overlooked, especially in a buy-sell situation.
ADA Impact on Existing Facilities
All 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 involved; the number of persons employed at the site; and the effect on the expenses and resources of the business involved.
ADA Impact on New Construction and Alterations or Additions to Existing Facilities
In the case of new construction of a commercial facility, the ADA requires that any new construction be readily accessible to disabled persons unless this would be structurally impracticable.
With respect to alterations, 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 in the Act to include any change that affects or could effect the use of a building or facility, such as remodeling, renovation, restructuring or the making of extraordinary repairs. Examples of an alteration under the ADA 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. Normal maintenance, such as re-roofing, painting, wallpapering, asbestos removal or modifications to mechanical or electrical systems are not normal alterations requiring compliance with the ADA, unless they affect the usability of the building.
While alterations to a building do not require extensive retrofitting of the entire facility, a dealership may be required to spend up to 20% of the total cost of the alterations on costs associated with ADA compliance. For example, if a facility is undertaking a $15,000 alteration, it may be required to make up to $3,000 in expenditures related to ADA compliant upgrades.
Recent Private Party Enforcement of ADA Compliance Requirements
In the past, ADA compliance requirements were primarily handled by the appropriate local authority overseeing building and safety and the issuance of building permits and certificates of occupancy. Thus, if a building permit is required to perform the alterations undertaken by a dealership facility, then the building inspector may condition the permit upon making the necessary ADA compliant alterations. However if no permit is required (or if it is required but the work was performed without a permit), the enforcement of ADA compliance issues has recently been undertaken by private parties who seek to have such ADA compliant upgrades made to the facility. For example, private parties have recently been suing businesses, including automobile dealerships, for non-compliance with ADA by simply going onto the business premises and looking for recent alterations which appear to have been done without complying with ADA. These private parties may then file a lawsuit against the business entity operating on the Premises. During the course of the lawsuit, the plaintiff then asks for copies of all of the business operator’s records on any improvements and/or alterations that were made since the ADA went into effect. If these records do not indicate that any effort was made by the operating business to bring at least part of the facilities (i.e. up to 20% of the cost of the total alterations) in line with ADA requirements, then the plaintiff may prevail in court or they may settle with the defendant business for damages.
As time goes on, more and more dealerships are likely to have made some alterations to their existing facilities without allocating an appropriate amount of the cost of such alterations to ADA compliance issues. As discussed above, many “alterations” under the ADA are so minor that permits would not be required for completion of the work. In light of this, dealerships, together with other service oriented businesses, face the risk that more and more lawsuits will be brought by private parties against such parties for failure to comply with the ADA requirements. If these plaintiffs are successful, a dealership defendant may then be responsible for (1) damages to the plaintiff of up to $10,000 or more depending on the degree to which the plaintiff can prove he or she was harmed; (2) retrofitting the facilities so that they become (at least partially) ADA compliant, and (3) attorneys’ fees and costs. Retrofitting the dealership premises to become ADA compliant may include creating designated parking facilities for the disabled, installing ramps to enable the disabled to travel to and from the parking lot to the dealership, making curb cuts in sidewalks and entrances, widening doorways, re-positioning telephones, shelves, rearranging tables, chairs and counters, remodeling bathrooms to widen the clear floor space, lowering paper towel dispensers, raising sinks so that they have adequate knee clearance, etc.
ADA Impact on Existing Facilities in a Buy-Sell Situation
As can be seen from the discussion above, both buyers and sellers in a buy-sell transaction should pay attention to the current state of the dealership facility with respect to ADA compliance when entering into a buy-sell agreement. For a buyer who will be leasing or purchasing the land and improvements, thought should be given to having the dealership facility inspected by an ADA inspector as part of buyer’s due diligence investigation and buyer will also want to obtain appropriate seller representations and warranties that the facility is in compliance with all laws and applicable requirements. A seller, on the other hand, may want to structure the transaction on a purely “as-is” basis whereby buyer assumes all risk for compliance of the facility with all applicable legal requirements, including the ADA. In any event, it is an issue that needs to be addressed as part of the over-all buy-sell transaction. For more information on ADA compliance issues, dealers should consult with their legal counsel.
This article was written in 2004.