Can Newly Passed Local Licensing And Zoning Ordinances Put You Out Of Business?

Keith Whann

The Car Counselor

You filed the necessary license applications, met the facility requirements, and paid the appropriate fees mandated by the state to obtain your motor vehicle dealer license. After years of doing business, the city where your dealership is located passes new licensing and/or zoning requirements that impact your dealership or only apply to used motor vehicle dealers. Some dealers, including you, are unable to comply with the requirements because your lot cannot be expanded to meet the size requirements or you would incur substantial costs to remove structures and/or pavement to plant landscaping. Sound crazy? It’s happening! A few years ago Prince George’s County in Maryland, passed legislation mandating that used car dealers have a minimum of 25,000 square feet to continue operating their businesses in the County. There was no grandfathering provision for existing dealers or other exceptions. The only option for those unable to meet the requirement was to move the dealership. In Cleveland, Ohio the city adopted an ordinance that required used motor vehicle dealers to apply for a license from the Commissioner of Assessments and Licenses and imposed new fencing and landscaping requirements. If you find yourself in this situation, what would you do?

Dealers who encounter new licensing or zoning requirements generally have three options: Ignore them and incur fines and penalties and, in some cases, risk losing the dealership; comply with them and incur additional licensing fees and costs to bring their dealerships into compliance; or take a stand and fight the legality of the ordinance, which could result in a long and costly legal battle. Before making a decision, dealers should carefully consider all of their options. The licensing issue is the most straightforward. The question of whether a municipality may impose licensing and/or zoning requirements upon used motor vehicle dealers may raise a valid constitutional basis for challenging it. Every state has enacted regulations governing the licensing of motor vehicle dealers. These regulations typically define when an individual or entity is required to obtain a license to engage in an activity and, if so, the requirements for obtaining one. Most state constitutions further prohibit local municipalities from adopting or enforcing laws that conflict with general laws of the state. Taking a look at a real life situation may help bring clarity to this issue.

In City of Dayton v. Stearns, an individual was found guilty of violating a city ordinance that prohibited casual sales of second-hand automobiles from premises not used exclusively for the selling or displaying for sale of second-hand automobiles. A statute enacted by the State of Ohio that regulates the licensing of motor vehicle dealers and salesmen, however, excluded casual sales from the scope of the licensing requirements. The individual asserted that the city ordinance was unconstitutional as being in conflict with the State law because it placed an absolute prohibition on selling or displaying for sale motor vehicles without a license and did not contain the casual sales exemption. The Municipal Court agreed.

The Ohio Constitution provides municipalities with the authority to exercise all powers of local self-government and to adopt and enforce within their limits such local police, sanitary, and other similar regulations not in conflict with the general laws having statewide application. Following the rationale articulated by the Ohio Supreme Court in Auxter v. City of Toledo, and a number of other case decisions preceding and following that case decision, the Court articulated that the test for determining whether an ordinance is ‘in conflict’ with general or state laws is “whether the ordinance permits or licenses that which the statute forbids and prohibits and vice versa.” In the case of the Dayton Ordinance, the municipality required those wishing to function as a second-hand automobile dealer in Dayton to obtain a license upon the payment of a fee to operate in an area in which the state law on the subject also requires one wishing to engage in the business to secure a state license for a fee and, because the Ordinance conflicted with the state or general law, the Court held that it was unconstitutional and invalid.

Challenging zoning requirements, such as the fencing and landscaping requirements imposed on used motor vehicle dealers in Cleveland, Ohio, is not as straightforward. Dealers should first consider if the ordinance covers issues that are also covered by state licensing requirements, such as lot sizes, or if it covers something that is typically governed by municipalities, like trees and green space. If there is an overlap between the state licensing and municipal zoning requirements, the constitutionality issues discussed above may apply. Dealers should then consider whether the ordinance applies to all businesses or a class of businesses. If only a select class of businesses are covered, there may be a constitutional challenge related to the application of the law. A broader issue is differentiating between an existing dealer who does not want to comply with a new regulation versus one who is unable to comply.

When situations such as these arise, it is important to quickly determine if you are impacted and how and to take immediate action. The longer you wait, the more difficult it may be to challenge new licensing and zoning requirements. Putting together a group commonly situated dealers is also a good idea. And remember, in matters such as these, your state and local dealer associations can be of great assistance!