negotiations by the seller until the agreed upon closing date passes. 5. Contemporary Close: If real estate is purchased, whether initially leased or purchased at closing, there should be provisions related to the requirements that the dealership and real estate closings must be contemporaneous or both transactions are voided. 6. Real Estate Agreement: In the real estate agreement, you will articulate a legal description of the real estate and set forth the proration of taxes, utilities, environmental investigations, inspections, expenses and transfer taxes. The latter is one of the most expensive items that occurs at closing. An average transfer tax for a West Virginia dealership can amount to tens of thousands of dollars. The parties need to negotiate who will pay these transfer taxes and fees. 7. Conditions for Closing: The purchase agreement will address certain conditions that are to be met before closing. For example, whether representations and warranties remain true and correct, approval by the manufacturer, financing obtained by the buying dealer, whether the buyer has been licensed by the Department of Motor Vehicles or the State Motor Vehicle Commission, execution of a dealer sales and service agreement, and whether any necessary third-party consents have been obtained. Once a definitive purchase agreement is signed, it generally takes 90 to 120 days to close. On the buyer’s side, there is significant required due diligence to perform regarding the seller’s dealership assets and financials, along with the real estate due diligence. A buyer is also focused on obtaining financing, floorplan and manufacturer approval. A seller, on the other hand, is focused on providing all the documents, keeping the transaction confidential until closing and trying to address the multiple vendors contracts that have to be addressed. There are a lot of moving parts. After manufacturer approval is received, closing can normally take place within two weeks. During this time frame, there is a whirlwind of activity between the buyer and the seller as details are being completed for lenders, manufacturers and other third-party vendors. The parties will need to be prepared to sign various documents at closing that may include a bill of sale, a deed or lease agreement, promissory notes, consulting or employment agreements, corporate resolutions, an assignment and assumption agreement, various representation letters and a post-closing agreement. The parties will also likely provide certificates of good standing/existence, updated schedules for the purchase agreement and closing notices to the manufacturer(s). As you can see, a buy-sell is quite an adventure. Sellers need to understand that even though the dealership may be sold, it is not uncommon that the three to six months post-closing will be rather busy wrapping up closing business details, working with state agencies to close various accounts, and perhaps handling consumer warranty issues and other matters that arose prior to closing. Further, manufacturers routinely do not release open accounts to the selling dealer for three to four months post-closing. This is normal and expected. I hope you find this article useful if you are considering such a significant decision. As always, the Association and I stand ready to assist you with any legal questions that may arise and help you stay in compliance with our challenging legal and regulatory system. “ The particulars of any Letter of Intent, Definitive Purchase Agreement, Real Estate Purchase Agreement and ancillary documents are all subject to negotiation to fit each transaction’s unique situation. WVADA NEWS 12
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