will be responsible for them and must buy the agreement out or continue to make payments. The agreements the buyer will assume should be included in the sale agreement. It is a mistake to leave this issue open for determination by the buyer and seller after the agreement has been signed because disputes often arise about what agreements the buyer will assume. The time to resolve this is before the sale agreement is signed. The reality, however, is that many parties choose not to address this issue at the time of signing the buy-sell agreement and leave it to be determined during the buy-sell process. If the sale occurs by a stock purchase, rather than an asset sale, the buyer of the stock will be assuming all existing agreements unless they are excluded by the agreement. Most dealership sales are by asset purchase agreements, not stock sales. In handling vendor agreements that are not being specifically assumed by the buyer in the buy-sell agreement, the agreement sometimes provides that the buyer will agree to also assume vendor agreements that, for example, cost less than five hundred dollars a month and can be canceled with a 90-day notice. For all vendor agreements that won’t be assumed by the buyer in the sale agreement, the seller should give notice to the vendors that agreements will be terminated at the earliest date allowed by the vendor agreement. Sometimes vendors will allow the agreement to be terminated on the date of the sale closing, or will at least agree to a reasonable termination date or buyout of the agreement, considering the business relationship the dealer and vendor have had over the years. To be ready if the time comes when a dealership will be sold, it is a good practice to insist with every vendor when the vendor agreement is signed, or amended, that there be a clause which will give the dealer the right to terminate the agreement on the close of a buy-sell. Such a clause might read: “Notwithstanding anything to the contrary in this agreement, or any amendments or extensions of it at any time after the date of the agreement, if the dealer determines to sell the dealership, the dealer may terminate this agreement by notice to (name of vendor) not less than 30 days before termination, with the termination to be effective the later of the closing date of the dealership sale or 30 days after the termination notice.” Dealers are advised to obtain their own legal counsel about the use of such a clause. Most vendor agreements have been carefully drafted by attorneys for the vendor and include favorable language for the vendors. The vendors will say company policy does not allow for any changes. A dealer’s response to objectionable provisions can be that if the vendor wants your business, some changes must be made. The ultimate decision on objectionable provisions will depend on the negotiating leverage of each party, the size and scope of the transaction, the risk tolerance of each party, and which party is likely to breach the agreement. The following is a checklist that highlights some areas of vendor agreements that need to be considered. Description of parties and effective date. The parties should be identified by their legal names. The effective date of the agreement should be clear. Scope of services or products. This section of the agreement should clearly describe in detail what the vendor is providing. Pricing and payment terms. The pricing and payment terms, including any taxes, should be clearly provided. The due date of payments should be stated. Any late payment penalty should be reasonable. Definitions. Some agreements will include a list of definitions that will affect the terms of the agreement. Any definitions should be carefully reviewed to show how they impact the agreement and to make sure they are consistent with the terms of the agreement. Reference to other documents. Attachments to the agreement must be reviewed. Some agreements will provide a website link that contains part of the agreement which must also be carefully reviewed. A dealer should object to any unfair provision in the agreement that binds the dealer to any changes on the website document whether or not the dealer is aware of or consents to the changes. When possible, it is a good practice to remove references that incorporate documents that are not attached to the vendor agreement, such as agreements on the vendor’s website, and to instead attach those to the vendor agreement so the terms of the entire agreement are clear. Term and termination. The term of the agreement and termination date are very important provisions. 29 California New Car Dealer Quarterly
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