HMA has recently started sending a Right of First Refusal Addendum (the “Addendum”) to Hyundai dealers for signature. Many dealers have been questioning whether the language included in the Addendum is standard for rights of first refusal (“ROFR”) in a Dealer Sales and Service Agreement (“DSSA”). The short answer is that the language is not exactly uncommon, but the Addendum greatly expands HMA’s rights compared to the current language in the DSSA, while limiting the dealer’s rights.
The first major change is how the right of first refusal is triggered. Under the DSSA language, HMA’s ROFR only triggers when HMA refuses to approve of a sale or transfer of a dealership. Further, the dealer could void the ROFR if it withdrew from the buy/sell within thirty days of HMA exercising its ROFR. The Addendum, however, creates a ROFR as soon as a dealer proposes to sell, assign, or transfer “all, substantially all, or a material part” of the assets or property used in the Hyundai Dealership operations. HMA is not even required to consider the proposed sale or transfer before exercising its ROFR under the Addendum. Additionally, the Addendum lacks language allowing the dealer to back out of the ROFR in any way once HMA exercises its rights.
The second major change involves the assets and/or obligations that fall under the ROFR. Under the DSSA language, HMA may “assume the rights and obligations” of the proposed buyer, meaning all of the rights and obligations conveyed in the propose sale. The addendum allows HMA to exercise its ROFR, but selectively remove “Non-Hyundai Assets” and “Liabilities” from the proposed deal if it wishes. It also purports to make the inclusion of any Non-Hyundai Assets or Liabilities in a proposed sale or transfer grounds for termination of the DSSA. At the same time, the Addendum allows HMA the option to treat Genesis assets as “Hyundai Assets” (HMA can still treat Genesis assets as “Non-Hyundai Assets”). This has potentially wild consequences, as the proposed sale of a dual Hyundai/Genesis dealership could result in HMA terminating the Hyundai DSSA for the inclusion of “Non-Hyundai Assets” in a buy/sell.
Ultimately, the Addendum makes extensive changes to the original ROFR clause written in the DSSA, shifting more rights and power to HMA while removing the same from the dealer. Dealers should contact their experienced franchised motor vehicle dealer counsel to discuss the possible implications of this addendum BEFORE signing it.