Dealer sales and service agreements of all major franchisors provide for a right of first refusal (“ROFR”) for the factory when a dealer contracts to sell the dealership. Virginia law regulates a factory’s exercise of its ROFR.
Manufacturers are increasingly exercising ROFR rights, whether to achieve marketing goals, to control who may be a franchisee, or to enhance minority participation in the dealer ranks. A factory’s exercise of a ROFR will leave a disappointed buyer with limited rights.
A buyer whose contract is assumed by the factory has the right to reimbursement of expenses. Many franchise agreements provide for reimbursement for “expenses” of a disappointed buyer, and Virginia law requires that the franchisor pay the “reasonable expenses…incurred by the proposed new owner and transferee prior to the manufacturer’s or distributor’s exercise of its right of first refusal in negotiating and implementing the contract for the proposed sale or transfer of the dealership or dealership assets.”
One issue that invariably arises about reimbursement of expenses is whether internal time of dealer employees is compensable. Some factories make no issue about a request for compensation for employee time. Others do, limiting reimbursement solely to expenses incurred by a dealer for items such as attorneys’ fees, surveys, title work, and similar bills from service providers.
So what does a dealer do about its employee time for studying various aspects of a deal? One suggestion is to have work on the deal done by consultants for the dealership. Questions about the selling dealer’s financial performance can be answered by an outside accountant. Questions about zoning, rights of way, ingress or egress, environmental compliance can be answered by the buyer’s attorney or outside engineering firm. While a manufacturer may question whether internal employee time constitutes “expenses”, there is little question that bills by outside consultants qualify.