Pub. 5 2015 Issue 2

10 AUTOMOBILE DEALER NEWS ILLINOIS www.illinoisdealers.com I n recent articles appearing in Automotive News, industry analysts have suggested that the automakers’ use of the right of first refusal (ROFR) is noticeably on the rise. Manufac- turers are more readily exercising the right to fulfill their market agendas, control placement of desired franchisees to represent their brands, and facilitate minority representa- tion. Dealers, especially those contemplating a sale or purchase of dealership assets or transfer of majority ownership interest, should review and understand the ROFR provisions within the applicable franchise agreements. There are significant considerations associated with the ROFR that can impact the seller and buyer in a dealership sale transaction. The ROFR provision typically is included in the fran- chise agreement or dealer sales and service agreement between the manufacturer and the selling dealer. It gives the manufacturer the right to bring its own, selected buyer to a dealership sale trans- action after the selling dealer and original proposed buyer have agreed upon the terms of their buy/sell deal. One important consideration about the ROFR is whether it is addressed by state franchise law. In a few states, manufacturers are prohibited from exercising the ROFR. Several other states do not prohibit the exercise, but instead impose limitations on its use. For example, some states mandate that the manufacturer’s right be exercised (and assigned to the manufacturer-chosen third party buyer) on the same terms and conditions as the original purchase offer. Additional limitations might include requiring manufacturer reimbursement of expenses incurred by the origi- nal prospective buyer in negotiating the buy/sell agreement. Such costs may include reasonable attorney’s fees, accounting charges and due diligence costs (e.g., surveys, title work, environmental assessments). Another consideration is what the franchise agreement states about the ROFR and the process leading up to its possible exercise. Where a state franchise law is silent about the manufacturer’s ROFR, the provisions of the manufacturer’s franchise agreement control. Generally, under most manufacturers’ franchise agree- ments, dealers who intend to sell their dealerships are required to give the manufacturer written notice and provide relevant documents within specified time periods. When the selling dealer notifies the manufacturer of the proposed sale, the manufacturer will evaluate the proposed transaction and buyer candidate. This may include evaluation whether to exercise the ROFR. Failure to provide notice can be adversely consequential to the dealer’s Dealership Sellers and Buyers Beware! A Primer About theManufacturers Right of First Refusal BY JULIE CARDOSI , LAW OFFICE OF JULIE A. CARDOSI, P.C COUNSELOR’S CORNER