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Auto principles guide released in response to unfair contract reforms

Adrian Flores
Adrian Flores
14 December 2020 1 minute readShare
Auto principles guide

The federal government has released a set of principles to guide agreements between car dealers and manufacturers in response to reforms relating to unfair contract terms.

The guide introduces six principles designed to help steer contract negotiations and build on the introduction of a separate schedule to the Franchising Code of Conduct for the auto industry on 1 June 2020.

The principles are that:

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Principle 1

Franchisors should include provisions in new dealership agreements that provide for fair and reasonable compensation for franchisees in the event of early termination resulting from:

 

  • withdrawal from the Australian market
  • rationalisation of their networks
  • changes to their distribution models

Principle 2

Franchisors should not include provisions that exclude compensation in new dealership agreements.

Principle 3

The “fair and reasonable compensation” as referred to in Principle 1 should include appropriate allowances for the loss a franchisee may incur, which can include:

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  • lost profit from direct and indirect revenue
  • unrecovered expenditure and unamortised capital expenditure where requested by the franchisor
  • loss of opportunity in selling established goodwill
  • wind-up costs

Principle 4

When an agreement is entered into, it should provide franchisees a fair and reasonable time to secure a return on investments that have been required by franchisors as part of the agreement.

Principle 5

Agreements should include reasonable provisions for franchisors to compensate or buy back new vehicle inventory, parts and special tools, in the event of:

  • non-renewal
  • withdrawal from the Australian market
  • rationalisation of their networks
  • changes to their distribution models

Principle 6

Agreements should include provision for timely commercial settlement and dispute resolution.


Minister for Employment, Skills, Small and Family Business Michaelia Cash said the reforms were the biggest for the industry in years and included extending the notice needed to terminate agreements, as well as regulations to improve transparency and communication.

“The government’s response to the Fairness in Franchising report in August this year also included reforms that allow auto dealers to have a fair, effective and accountable framework while still encouraging competition in franchising,” Ms Cash said.

“This included doubling the maximum fiscal penalty applying to a breach of the Franchising Code and implementing more accessible, enforceable and effective dispute resolution.

“The government’s work on unfair contract terms will also benefit dealers by making unfair contract terms unlawful and giving courts the power to impose civil penalties.”

Auto principles guide released in response to unfair contract reforms
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Adrian Flores
Adrian Flores

Adrian Flores is the deputy editor of MyBusiness. Before that, he was the deputy editor for SMSF Adviser as well as features editor for ifa (Independent Financial Adviser), InvestorDaily, Risk Adviser, Fintech Business and Adviser Innovation.

You can email Adrian at [email protected].

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