New Vehicle Dealership Agreements become law.

On 1 June 2020, changes to the Franchising Code of Conduct took effect, leading to further legislative financial reform of the automotive industry. This follows the Australian Securities and Exchange Commission (ASIC) increasing its investigation into car dealerships and retailers. 

Which dealerships are affected?

Most conventional car dealerships will be affected. The legislation pertains solely to “New Vehicle Dealership Agreements”, including the following:

• New passenger vehicles seating up to 9 people. 

• Commercial vehicles with a mass below 3.5 tonnes, constructed for transporting goods. 

Key changes to the Franchising Code of Conduct in relation to New Vehicle Dealership Agreements include the following:

End of term notification obligations:

If manufacturers and dealers have a New Vehicle Dealership Agreement with a term at or exceeding twelve months, according to the Amending Regulations, the notice period for that term is now no less than twelve months prior to the expiration of that term. If both parties agree to a later date, the notice period is before that date. 

New Vehicle Dealership Agreements due to end in under twelve months have the following, separate requirements:

• If over six months, written notice must be provided no less than six months before the end of the agreement. 

• If under six months, written notice must be provided no less than one month before the end of the agreement. 

Equivalent end of term obligations apply to franchisees affected by New Vehicle Dealership Agreements, potentially granting them a right to renewal traditionally only available to franchisors. Legal consensus in relation to this new concept is expected to become clearer in the future. 

In the event of a choice by either franchisor or franchisee to not renew their Agreement, the Amending Regulations state that the parties must agree on a written plan, detailing specific goals and dates, and detailing the closure of the dealership. 

Multi-party dispute resolution:

An amendment to the pre-existing processes for franchisor/franchisee dispute resolution gives two or more franchisees the option, but not the obligation, to negotiate jointly with their shared franchisor, provided they have an issue of a similar nature. 

Capital expenditure:

While the franchisor is not required to state the monetary sum of capital expenditure to the franchisee and has the right to request significant capital expenses (if necessary), franchisors must justify their financial decisions to franchisees. In doing so, they must outline: their rationale for expenses, potential risks, expected outcomes, timing as well as other relevant considerations. 

These changes are complex and extensive, often requiring specialised legal knowledge to navigate. If you are party to a New Vehicle Dealership Agreement and require legal advice on how the amendments to the Franchising Code of Conduct affect you, contact us for a consultation.