and indemnification, or a claim for breach of the dealer agreement. Therefore, a dealer should review its applicable dealer agreements with its lenders to ensure that selling a vehicle to an unlicensed buyer does not breach the representations and warranties it has made to the lender. Best Practices Checklist for Dealers Dealers can reduce their exposure by focusing on when they authorize a vehicle’s operation and by documenting reasonable efforts to ensure the vehicle is operated by a licensed, competent driver. 1. Test Drives and Loaners: Verify the prospective buyer’s license before handing over keys; confirm proper vehicle class; document the check; and refuse operation if impairment or incompetence is apparent, consistent with California Vehicle Code sections 14606 and 14604(a). 2. Retail Sales to Unlicensed Buyers: Separate the sale from taking delivery and driving the vehicle off the dealer’s lot. Only deliver the vehicle to a licensed co-buyer or authorized driver, document the fact that a licensed driver drove the vehicle by having them sign a Statement of Facts and retain a copy of their driver’s license. Alternatively, have the vehicle delivered to the customer’s residence via commercial transport; retain evidence of the licensed delivery; and have the customer sign a Statement of Facts agreeing not to drive the vehicle on public highways until he/she is properly licensed. 3. Leases: Because the lessor remains the owner, do not enter into a lease with an unlicensed lessee where the lessee will operate the vehicle; verify and document licenses for all permitted drivers under California Vehicle Code section 14606. Also, make sure to check your dealer agreement with your lender. 4. Delivery-Day Sobriety and Fitness: Decline delivery where obvious intoxication, impairment or incompetence is present; reschedule or deliver to a licensed third party or transporter; document the basis and who the vehicle was delivered to. 5. Training and Audits: Train sales, F&I, and service staff on verification and documentation procedures; audit deal jackets and loaner files for compliance with statutory checks and internal policies. The author of this article is a partner at Manning, Leaver, Bruder & Berberich LLP, a Los Angeles law firm that practices throughout California and has been in existence for over 100 years. It has a strong automobile dealer practice covering all areas of the industry, including dealership buy-sells, real estate transactions, business and consumer litigation, regulatory compliance, dealer advertising law, dealer association law, new motor vehicle board matters and franchise law. See manningleaver.com for more information and areas of practice. Nothing in this article may be considered as legal advice. Contact legal counsel for legal advice. 25 California New Car Dealer Quarterly
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