Aldrich Law Firm, Ltd.
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Owners of closed dealership settle lawsuit with town

A lawsuit between a village in another state and the former owners of a car dealership demonstrate how entering into business agreements with local governments in Nevada can be tricky. The two sides in the business litigation have settled the case, with the owners of the now-closed dealership paying the village $400,000.

The litigation was the result of an agreement likely meant to encourage the owners to open or keep their car dealership in the village. In 2005, the municipality gave the dealership $400,000 in tax breaks to help with the costs to fix up the showroom building. It also purchased a parcel of land next door for $1,156,500 and leased it back to the dealership to use as a parking lot.

But two years later, General Motors cancelled its franchise agreement with the dealership after it ended its Oldsmobile line. That forced the dealership to go out of business. When the owners leased the building to a health club, the village sued, saying that the lease violated the terms of their contract.

The lawsuit was filed in October 2009. The sides finally approved a settlement on Nov. 19. In the settlement, the dealership owners agreed to pay the city $350,000 in a lump sum by Dec. 31 of this year and another $50,000 in increments by Dec. 31, 2013. The village also gets to keep the parking lot property, which it plans to develop into something else eventually.

While receiving tax breaks and other incentives from local government can be a sound business strategy, sometimes events that were not anticipated in the agreement can cause serious problems. Consulting a business attorney prior to signing a contract with the city can help avoid those issues later.

Source: Oak Park Leaves, “Oak Park settles lawsuit against dealership,” Bill Dwyer, Nov. 20, 2012

John P. Aldrich
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