Changes to the franchising code for motor vehicle dealerships

Jul 21, 2020

Do you operate a motor vehicle dealership? Here’s what you need to know about changes to the Franchising Code.

Changes have been introduced to the Competition and Consumer (Industry Codes – Franchising) Regulation 2014 (Franchising Code) for motor vehicle dealers selling new passenger vehicles and new light good vehicles.

What are the changes?

The changes to the Franchising Code relating specifically to new vehicle dealership agreements relate to:

• End of Term obligations of the parties;
• Capital Expenditure; and
• Dispute Resolution.

End of Term obligations

Franchisors and dealers must provide written notice and reasons to the other prior to the end of the term of the dealer agreement if they do not intend to extend the term or enter into a new agreement.

If the franchisor or the dealer provide notice that they do not intend to renew the dealer agreement, the parties must agree to a written plan for managing the wind down of the dealership.

Capital Expenditure

A franchisor must not require a dealer to incur a ‘significant capital expenditure’ unless certain exceptions apply. Those exceptions include where the capital expenditure has been disclosed in the Disclosure Document provided to the dealer before entering into or extending the term or scope of the dealer agreement.

Franchisors are required to include the following information in the Disclosure Document in relation to any proposed capital expenditure:

• the rationale for the expenditure;
• the amount, timing and nature of the expenditure;
• the anticipated outcomes and benefits of the expenditure; and
• the expected risks associated with the expenditure.

The changes to the Franchising Code also require the Franchisor and dealer to discuss the expenditure, as well as the circumstances under which the dealer considers that the dealer is likely to recoup the expenditure.

Dispute Resolution

The Changes to the Franchising Code allow for two or more dealers having a dispute with the franchisor of the same nature to request the Franchisor to deal with the dealers together in relation to the dispute. Whilst there is no explicit obligation on the franchisor to undertake multi-franchisee dispute resolution, the Franchising Code’s general good faith obligations will continue to apply to the parties.

What should I do now?

If you are contemplating entering into a new vehicle dealer agreement or renewing an current new vehicle dealership agreement then it is important that you understand the changes to the Franchising Code.

The Kalus Kenny Intelex Commercial Team assists a range of car dealerships, and is here to help.