Digital Dealer - June 2019 - 10

D E A L E R OP S & M ANAGEM ENT: F r a n ch i se Law s

By Richard Sox, Esq.
Partner,
Bass Sox Mercer

Beware of the
Terms of Your
OEM's Approval
of a Franchise
Relocation
Request
Dealers are required to
seek the approval of
their manufacturer in order
to relocate their franchise to
a more desirable location.
In most states, the manufacturer has full discretion
as to whether to approve or
deny that request. In some
states, the manufacturer
may not "unreasonably"
deny a relocation request.
Of course, common sense
suggests that a manufacturer would be happy to hear
that its dealer is taking the
initiative, and willing to incur
the expense, of moving the
franchise to a better
location and into a compliant facility. However, more
and more, we see manufacturers provide approval for
the relocation request in the
form of a relocation
agreement which contains
extremely onerous provisions.
In this classic case of "no
good deed goes unpun10

JUNE 2019

ished," the manufacturer
attempts to take advantage
of the situation to include
various requirements the
dealer must comply with in
order to proceed with the
relocation. Even though the
dealer is the one incurring

as the dealership would
continue to operate from its
currently approved location with no harm done to
the manufacturer even if it
takes the dealer a year longer to complete the facility
than initially thought. None-

JUDGES...ARE
ACCUSTOMED TO
ENFORCING THE TERMS
OF A CONTRACT - NO
MATTER HOW HARSH."
the costs of acquiring land
and renovating an existing
facility or building a groundup facility to manufacturer
specifications, manufacturers are including very
restrictive timelines in the
relocation agreement within
which certain phases of
construction must be complete in order to proceed
with the relocation. This, of
course, makes no sense

D I G I TA L D E A L E R . C O M

theless, these relocation
agreements require certain
phases of construction to
be completed by a date
certain or the dealer will be
in breach of the relocation
agreement.
The result of being
in breach of the facility
milestones in the relocation
agreement range from having the relocation approval
withdrawn to having the

franchise terminated! Yes,
that's right, even though
there has been no harm
done to the status quo operations of the franchise,
and even though the
relocation is a voluntary
move on the part of the
dealer to begin with, some
of the relocation agreements require that you
terminate the franchise if
you fail to meet the facility
milestones. Would a manufacturer really terminate
an otherwise compliant
dealership just because
the dealer failed to reach
a particular milestone on
the facility at the relocation
site? I don't know, but we
have all seen manufacturers take unbelievably
heartless actions in the
past. I do know that if
the manufacturer is not
pleased with the dealer's
current operations, there
is a higher probability it
would use a breach of
the relocation agreement
to run the dealer out of
business.
Now, it is important to
remember that no termination of a franchise can
occur without the dealer
having the opportunity
to protest under state
motor vehicle franchise
laws. Under those laws,
the manufacturer would
have to demonstrate good
cause in terminating the
dealership. Although I
would expect the manufacturer not to have success
in meeting that burden,
it is a risky proposition.
Judges are unpredictable
and, outside of the overlay
of motor vehicle fran-
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