CGB Reports

ConocoPhillips - Pacific Convenience & Fuel Deal

What Does the "Consent To Assignment of Right of First Refusal" Mean?

Pacific Convenience & Fuel (PC&F) has sent out its second letter titled "Consent To Assignment of Right of First Refusal."

In the letter it refers to either an assignment or waiver of the ConocoPhillips dealer's legal rights, interchangeably. The distinction may be important later in determining whether this agreement is actually legally binding or not.

In the first sentence PC&F states that it "has a signed...agreement to acquire the remaining gas station and convenience store assets held by ConocoPhillips." Neither ConocoPhillips nor PC&F has disclosed the terms of that signed agreement.

The letter then asks that the dealer waive right of first refusal under Federal and state law. The Federal law, the PMPA, does not apply to this transaction because the dealer's 76 branded supply contract is not being terminated or nonrenewed by this transaction or the letter. California law clearly does apply.

California Business and Profession Code § 20999.25(a) states:

"In the case of leased marketing premises as to which the franchisor owns a fee interest, the franchisor shall not sell, transfer, or assign to another person the franchisor's interest in the premises unless the franchisor has first either made a bona fide offer to sell, transfer, or assign to the franchisee the franchisor's interest in the premises, other than signs displaying the franchisor' s insignia and any other trademarked, servicemarked, copyrighted or patented items of the franchisor, or, if applicable, offered to the franchisee a right of first refusal of any bona fide offer acceptable to the franchisor made by another to purchase the franchisor's interest in the premises."

The important parts of §20999.25 (a) as it applies to this sale by ConocoPhillips are, In the case of leased marketing premises as to which the franchisor owns a fee interest,  the franchisor shall not sell, transfer, or assign  to another person the franchisor's interest in the premises  unless the franchisor has first ..., if applicable, offered to the franchisee a right of first refusal of any bona fide offer acceptable to the franchisor  made by another to purchase the franchisor's interest in the premises.

         This isn't rocket science. PC&F has made a deal. They say so in the letter. ConocoPhillips can't sell any location unless it gives the dealer a right of first refusal, i.e. must disclose the price PC&F is paying for that individual station and offer it at that price.

The Pacific Convenience & Fuel letter asks you to waive a right of first refusal that you haven't even received yet, even though ConocoPhillips (not PC&F) was required to give you the right of first refusal when they received the offer and BEFORE they "signed an agreement" to sell the property to PC&F.

So, what's wrong with the PC&F agreement?

1. The rent freeze for two years may be a relatively minor concession compared to the value of the right of first refusal that ConocoPhillips should have given you. You also don't know what the rent will be after the two years, will PC&F give you a discounted rent, market rent, or catch up with the year freeze by charging higher than market rent. There is no rent control for service stations in California.

2. You can buy the station from PC&F later. However, you only have "the right to negotiate" the purchase. They have not offered to sell the property at the price that PC&F purchased it for, or at market value or any stated price. In the law, an agreement to negotiate and to agree in the future is called an "illusory" agreement and is unenforceable and worth nothing.

3. If you negotiate an acceptable price, then PC&F will help with the financing. But, does it really say that? No, it says that they  intend  to offer financing. If they change their minds later on, you can't enforce an intention. Second, they are saying they will provide financing; they intend to offer financing "support." What does support mean? Some oil companies tack on a list of four or five lenders at the end of an offer to sell the station property to a dealer and consider that financing support. "Benefit" number 6 concludes by stating that "We are still reviewing the type and extent of financing that we may be able to offer." This is nothing you can take to the bank.

RECOMMENDATIONS:

Only you can decide whether or not to sign this letter, but you should only do so if you fully understand what you are giving up vs. what, if anything, you are getting in return.

1. Seek the advice of an attorney experienced in petroleum marketing law.

2. Discuss this deal between ConocoPhillips and PC&F with other dealers and industry leaders (without disclosing the terms of any earlier offer by ConocoPhillips that might have included a non-disclosure law).

3. You or your attorney should take up PC&F's offer to contact Chris Martin or PC&F's attorney to try and get additional information.

4. Consider making a "counter-offer" for giving up your valuable legal rights. This should be done only after consulting with an attorney as it could result in a "rejection" of PC&F's offer.

5. Carefully consider the consequences, plusses and minuses, of refusing to sign this assignment of waiver of your rights and waiting to see what ConocoPhillips does later. Again, you should only consider this option with the assistance an attorney knowledgeable in petroleum marketing law.

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