Pub. 1 2012-2013 Issue 2

N E W J E R S E Y C O A L I T I O N O F A U T O M O T I V E R E T A I L E R S N E W J E R S E Y C O A L I T I O N O F A U T O M O T I V E R E T A I L E R S S U M M E R 2 0 1 2 18 19 new jersey auto retailer W W W . N J C A R . O R G new jersey auto retailer Impact on Buy-Sells  continued on page 20 The enactment of the franchise law amendments, which became effective May 4, 2011, was a remarkable achievement on behalf of NJ CAR, its members and the lawyers actively involved in protecting the legal interests of the dealer. Many of these amendments have a direct and significant impact on buy/sell transactions. Needless to say, the manufacturers are responding to these law changes in their hostile way. T he amendments are permeated with provisions that will (and have already had) both a direct and indirect impact on buy/sells. The following are the most significant: The new law prohibits a manufacturer from conditioning the approval of a buyer on any requirements other than his or her qualifications to be a dealer; The amendments also preclude the franchisor from including any term or condition in the franchise agreement proffered to the buyer which violates any provision of the New Jersey franchise law; There are now severe restrictions on the franchisor’s abil- ity to impose an exclusivity requirement, a facility upgrade requirement, or a site control arrangement on the buyer. The manufacturer can potentially overcome these prohibitions by entering into a voluntary agreement with the buyer and providing a separate and valuable consideration; A defined procedure for establishing the completeness of a franchise application and the precise deadline for the issuance of manufacturer approval are now provided; and The right of a dealer subject to a termination to sell his or her franchise during the legal battle with the franchisor is now clearly established. As explored below, each of these provisions have improved the buy/sell climate in New Jersey, at least from a legal standpoint. In addressing buy/sells at a recent conference of the NADC, the national association of lawyers representing automotive dealers, I commented that one of the most significant pitfalls in a buy/ sell is factory interference. For years, this was evidenced by the manufacturer’s view that a buy/sell was its opportunity to re- structure the franchise relationship. This typically took the form of a substantial facility upgrade and, sometimes, a relocation. It also involved other significant conditions, such as a substantial increase in the working capital requirement or the imposition of sales performance and CSI thresholds. Such matters have now been addressed in the new law as summarized above. Needless to say, such conditions to approval had a significant, negative impact on the deal. In many instances, the deal required renegotiation; in others, the buyer merely walked away. With the legal changes now in effect, the manufacturers under- stand that they do not have the unfettered discretion to impose whatever requirements or conditions they deem fit upon the buyer. They know that there are now severe limitations. In handling buy-sell transactions since the new law came into ef- fect, I have seen firsthand a more tempered position on the part of the manufacturers with regard to the conditions that they would typically impose upon a buyer. Having said this, I do not believe that the legal changes have fully sunk in with the factories and, as discussed below, they continue with their efforts to persuade a buyer to accept their conditions of approval. The changes affecting the application process have also been ben- eficial. As many of you know, in the past, the manufacturer would never concede that a completed application has been submitted. Impact of the Franchise Law Amendments on Buy-Sells BY JOSEPH S. ABOYOUN, ESQ.