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Site Control For Automobile Dealerships in the 21st Century

 

An understanding of site control sometimes referred to as “point protection,” is important with respect to the dealer’s intended use for the property and becomes extremely  3km.important if a dealership proves not to be successfua distinction, however, between site control as it applies to non-dealership real property and site control regarding new car dealerships. Because of the many forms and because of the distinction with respect to car dealerships, it would be wrong to generalize that site control per se is either good or bad. Each case must be assessed individually.

A right of first refusal almost always chills a land owner’s ability to sell the real estate. The theory being that a prospective third party purchaser would not be as easily inclined to spend the time, money and energy required to compose an offer for real estate, knowing the tenant has the right to accept the offer and obtain the benefit of the third party’s research and bargaining when the optionee exercises his option.

In the case of a sale of an automobile dealership, that statement is rarely true.

BACKGROUND

While site control had been around for decades, the surge in real estate prices, in the 1970s and 1980s saw many metropolitan dealers selling their facilities for what seemed then to be astronomical sums. Properties that dealers purchased, or constructed for a few hundred thousand dollars in the 1940s, 50s and 60s were, by the late 1970s, selling for millions.

As real estate prices escalated, so did the cost of replacing the facilities and manufacturers were finding it difficult to obtain dealers to invest in many of those areas.

Consequently, by the mid 1980s site control began to appear for the first time in Sales and Service Agreements of the factories.

For a short time back in the 1980s, there was a conflict between dealers and Chrysler Realty Corporation (Realty) when Chrysler sold Realty to an independent, non-automotive company, ABKO.

The situation in the 1980s was an anomaly and since Chrysler repurchased Realty from ABKO, all of the factory realty companies have been owned by the factories, whose goal is to support their dealers.

In the mid 1980s, when a few factories began to include rights of first refusal in their service and sales agreements, most people thought the restrictions would affect the sales price of dealerships and their facilities by chilling prospects and diminishing offers.

By the 1990s, every manufacturer’s sales and service agreement contained a right of first refusal and, by the turn of the century, no one thought anything about it.

By the year 2000, dealers discovered that the manufacturer’s right of first refusal had absolutely no effect on the sales price of dealerships or their facilities.

Over the course of the past 20-years, we have never seen or heard of a case where a dealership sold and the dealer received less blue sky because of site control, or the purchase price of the facility was discounted because of site control.

Even in the few instances that the factories have exercised their options, we never heard of an instance where there was a “discounted price” because of the right of first refusal.

Generally, the factory exercises it right and just hands the existing contract to a dealer of its choice and the new dealer pays a full commercial retail for the business and real estate.

Below is an example of the wording in Mercedes-Benz USA’s Sales and Service Agreement:

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