New car dealerships and the Franchising Code: notices, wind-down plans and buy-backs

• A motor vehicle dealership includes its servicing and repair work, and agency arrangements where the dealer sells as agent for a principal (s6).
• The Australian Automotive Dealers Association estimated there were 3,026 franchised new vehicle dealerships in 2023, as cited in the Schaper review.
• In a good faith dispute over a new vehicle dealership agreement, a court must consider whether its terms are fair and reasonable (s18(3)(b)).
• Sections 45 and 46 carry the higher tier: for a company, the greatest of $10 million, 3 times the benefit or 10% of turnover.
• The dealer-specific rules began in the 2014 Code on 1 June 2020 and 1 July 2021, and carried into the current Code from 1 April 2025.

• Any motor vehicle dealership agreement is taken to be a franchise agreement (s7(2)(c)), whether or not it meets the general definition.
• A motor vehicle dealership is a business of buying, selling, exchanging or leasing motor vehicles, other than purely as a financier, together with any servicing or repairing it does (s6).
• It includes selling motor vehicles as an agent for a principal, the agency model, with any servicing or repairing (s6). The Schaper review said the July 2021 changes had clarified that agency models are covered.
• The Code's examples of motor vehicles include cars, motorcycles, tractors, farm and construction machinery, aircraft and motor boats, so the general Code reaches many kinds of dealer.
• The extra new car rules apply only to new vehicle dealership agreements: dealerships that predominantly deal in new passenger vehicles, new light goods vehicles or both. The Schaper review noted this excludes truck, farm machinery and motorcycle franchises.
• Servicing and repair were written into the definition from 1 April 2025, after the Schaper review recommended the change. In a 2023 Federal Court case, the judge rejected a car maker's argument that a separate service and parts agreement fell outside the Code.

1. The franchisor must tell the dealer in writing whether it intends to extend the agreement, enter into a new one, or neither (s85(1)).
2. For a term of 12 months or longer, the notice must be given at least 12 months before the term ends, or before a later time if both parties agree (s85(2)).
3. For shorter terms: at least 6 months before the end for terms of 6 months or more, or 1 month for terms under 6 months (s85(3)).
4. If it offers a new agreement, the notice must say the dealer may request a disclosure document under s32 (s85(4)).
5. If it intends neither, the notice must give its reasons (s85(5)).
6. The dealer must give the same kind of notice on the same timetable, with reasons if it won't continue (s86), although that duty carries no civil penalty.
7. Worked dates: for an agreement ending on 31 December 2027, the franchisor's notice is due by 31 December 2026; for one ending on 30 June 2028, by 30 June 2027, unless the parties agree a later time.

The general 6-month notice rule for other franchises (s36) doesn't apply to new vehicle dealership agreements (s35).

• A plan is triggered when the franchisor says it will neither extend nor offer a new agreement, or the dealer says it will neither renew nor enter into a new agreement (s87(1)).
• Both parties must, as soon as practicable, cooperate to develop and implement a written plan, with milestones, for winding down the dealership (s87(2)).
• The plan must cover how the dealer's stock, including new road vehicles, spare parts and service and repair equipment, will be managed over the rest of the term.
• The Code notes that the good faith obligation applies to the process.
• The obligation carries up to 600 penalty units: $218,400 for conduct from 1 July 2026.
• Practical milestones might include stock ordering cut-offs, parts returns, warranty and service arrangements for customers, staff communication and signage removal.

1. The agreement must compensate the dealer if it ends early because the franchisor withdraws from the Australian market, rationalises its networks in Australia or changes its distribution models in Australia (s45(2)(a)).
2. It must say how compensation is worked out, with specific reference to lost profit from direct and indirect revenue, unamortised capital expenditure the franchisor requested, lost opportunity to sell established goodwill, and wind-up costs (s45(2)(b)).
3. It must provide for the franchisor to buy back, or compensate the dealer for, new road vehicles, spare parts and special tools if the agreement isn't renewed and no new agreement is offered, or if it ends early for one of those three reasons (s45(3) and (4)).
4. It can't exclude any other compensation the dealer may be entitled to if the agreement ends early for a reason other than the dealer's breach (s45(5)).
5. Each carries the higher tier: for a company, the greatest of $10 million, 3 times the benefit or 10% of adjusted turnover; for an individual, $500,000 (s17).

Other franchises now have a similar compensation rule in s43, but their buy-back applies only on early termination for those three reasons, not on non-renewal, and it sits in the standard 600-unit tier.

• A new vehicle dealership agreement must give the dealer a reasonable opportunity to make a return, during the term, on any investment the franchisor requires to enter into it or under it (s46(2)). This is also in the higher tier.
• Before entering into, renewing or extending an agreement, the franchisor must discuss any significant capital expenditure disclosed in the disclosure document and how the dealer is likely to recoup it, given its area (s47).
• The franchisor can require significant capital expenditure only if it was disclosed, is needed to comply with the law, is agreed by the dealer, or is incurred by all or most dealers and approved by a majority (s60).
• The Schaper review said the dealer rules aimed to address agreements that required significant investment but offered only short terms without a genuine chance to recoup it.
• Stakeholders told the review there had been some movement towards longer tenure and more meaningful discussions about return on investment and compensation.

• Where a franchisor has 2 or more dealers and 2 or more have a dispute of the same nature, two or more of them may ask the franchisor to deal with them together (s88).
• All franchisees, dealers included, can also agree to resolve similar disputes the same way, discuss them with each other despite confidentiality terms, and refer them to a single mediation or conciliation (s73).
• The usual steps apply: written notice of the dispute, 21 days to agree, then mediation or conciliation, with the Australian Small Business and Family Enterprise Ombudsman appointing a practitioner if needed (s72).
• Franchisors must not restrict dealers' freedom to form or join an association (s64), another higher-tier provision.
• In a good faith dispute, a court must consider whether the agreement's terms are fair and reasonable (s18(3)(b)).

• Does my agreement include my servicing and repair work, or has that been split into a separate agreement?
• How long is the term, and is it long enough to recoup the investment the manufacturer or distributor requires?
• What significant capital expenditure is disclosed, and what did our discussion say about recouping it in my area?
• How is early termination compensation calculated, and does the buy-back cover new vehicles, parts and special tools on non-renewal?
• When will I get the 12-month end-of-term notice, and has any later date been agreed?
• What will the wind-down plan cover if either side decides not to continue?
• Are other dealers raising the same issues, and would a joint approach under s88 help?

• Every dealer agreement, including service and repair and agency arrangements, is treated as a franchise agreement.
• Terms, capital expenditure requirements and payback periods have been tested against s46.
• Compensation clauses cover the three triggers and the four factors in s45(2), and the buy-back covers non-renewal.
• Nothing excludes other compensation for early termination without the dealer's breach (s45(5)).
• End-of-term notices are diarised at least 12 months before expiry, with reasons ready if you won't continue.
• A wind-down plan template, with milestones for stock, parts and equipment, is ready to use.
• Requests to deal with dealers together are answered in good faith.