Buy/Sell Agreement checklist for purchasers and vendors

We recommend that during the early stages of a buy/sell transaction, prospective purchasers and vendors of motor vehicle dealerships should consider the checklists below

Vendor checklist for a motor vehicle dealership transaction

Preliminary negotiation

1. Do you intend to sell shares or assets?
2. How have you valued your business?
3. Do you intend to negotiate with several parties or offer exclusivity to one potential purchaser?
4. Have you discussed the transfer of each of your dealer agreements with each relevant distributor that you are transferring?
5. Have you obtained the selection criteria for each of the relevant distributor being transferred? If so, have you searched for purchasers that meet the selection criteria?
6. Will the distributor request significant capital investment from the prospective purchaser?
7. Are you currently in breach of the dealer agreement?
8. Are there any outstanding payments owed to the distributor?
9. Can you offer a purchaser a sufficiently long term on each of the dealer agreements?
10. Have you been threatened or served with non-renewal or termination notices?
11. Will the landlord consent to the transfer of a lease?
12. What can you do to maintain confidentially?

Heads of agreement

1. Consider whether the heads of agreement should be legally binding or not.
2. Consider what condition precedents are necessary.
3. Include a provision for confidentiality.
4. Ensure that your request for a distributor’s consent to transfer, or to novate, the Dealer Agreement to a specific purchaser is made in writing.
5. Use the protection in the Franchising Code of Conduct to avoid the distributor causing delays.

Other issues

1. How many security interests, under the forthcoming Personal Property Securities Act 2009 are registered that will require discharge?
2. When will the stocktake be undertaken?

Purchaser checklist for a motor vehicle dealership transaction

Preliminary negotiation

1. Will any of your current motor vehicle franchises object to the proposed purchase? Is distributor consent required?
2. If your current business is heavily dependent on one specific motor vehicle franchise e.g. Toyota, Holden or Ford, have regard to whether the those dealer agreements are at the beginning or end of the term before requesting consent to multi franchise further. This is important for renewal purposes.
3. Consider whether consent of the distributor is required if the corporate entity purchasing the dealership is different to that which is a party to your existing dealer agreements.
4. Consider the corporate and tax structure of the purchase generally.
5. What is the remaining term of the lease?
6. Who is the landlord?
7. What additional capital investment will the distributor demand?
8. Is the permission of the Foreign Investment Review Board necessary?
9. What can you do to maintain confidentially?
10. Is the brand you are purchasing in your current portfolio but at a different location? If so, are you a “performing” dealer?

Heads of agreement

1. Consider whether the heads of agreement should be legally binding or not.
2. Consider what condition precedents are necessary.
3. Include provision for price adjustments.

Other issues

1. Is a motor vehicle dealer licence required?
2. How will funds be paid on the day of completion?