Issues in Auto Storage Leases

Issues in Auto Storage Leases

Apparently, the automobile industry is doing very well here on Long Island, New York.  In any event, there is an increasing inventory of new cars being delivered to dealers who cannot sell them fast enough to consumers.  Accordingly, several of our landowner clients have been approached by car dealers to lease vacant land for storage of new automobiles.

While this demand can provide unexpected opportunities for land owners, property owners need to consider several factors before entering into these transactions.

1.      Condition of Vehicles.  Make sure automobiles are new and not used/dilapidated/damaged. Last year there were several outfits looking to store “Superstorm Sandy” damaged vehicles pending disposal, which raised concerns about leaks of oil, antifreeze, engine coolant and other hazardous substances.

2.      Permitted Use under Zoning Laws.  Many municipalities have zoning codes, which do not expressly deal with the storage of automobiles.  Often, it is neither an expressly permitted use nor a prohibited use.   The owner should not represent that the use is legal, and any permits, variances, special use permits, etc. should be the obligation of the tenant to obtain.  Depending on the leverage of the parties, the tenant may be required to pay rent pending such approval, because tenants will often use the property pending issuance of any violation or complaint by the municipality.. If the site is proximate to any residential area, or even some types of commercial areas, expect vociferous complaints from neighbors, and ultimately politicians.

3.      Pending Sale.  One of our clients signed a lease for the  storage of new automobiles and has since entered into a contract of sale with another party.  The contract provides that the owner would assume the obligations under the lease, but that there’s no obligation on the part of the landlord to insure that the lease is in effect.  This protects the landlord in case the use is discontinued and/or the tenant vacates, so that the new owner does not expect any rental income upon closing.  In this instance, the sale is conditional on the owner getting approvals for a retail development so unless and until those approvals are issued, the owner is enjoying the benefits of the lease, while eliminating any meaningful exposure or restraint on marketability.

A straightforward lease of vacant land for a non-noxious use providing a rental stream to an owner of otherwise fallow land sounds like a win-win situation.  This can work provided that the owner’s attorney keeps in mind these issues, and others, that may arise.

  By:      Eric Rubenstein, Esq
            Ruskin Moscou Faltischek P.C.
           
erubenstein@rmfpc.com

            516-663-6513

 

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