A dealership sale is not the same thing as selling a dental practice or a trucking company. In most deals, the buyer and seller sign a contract, the lender funds, and the keys change hands. In a franchised dealership deal, the real gatekeeper is the factory. Add floor plan lenders, real estate entities, parts and service operations, and the Illinois Motor Vehicle Franchise Act, and you quickly see why a generic purchase agreement can unravel in the final mile.
When we review buy sell agreements for Illinois dealers, we see the same pattern. The contract is drafted like a standard business sale, and then dealership reality shows up. The manufacturer wants more time or more information. Someone mentions the manufacturer’s right of first refusal. The floor plan lender needs a payoff package and a VIN schedule that no one prepared. The parties start arguing about how much of the price is blue sky versus hard assets. Meanwhile the rumor mill kicks up, employees get nervous, and the parties lose control of the timeline.
Five clauses matter most. They do not make a deal complicated. They make it honest. And when they are drafted correctly, they keep the buyer and seller in charge instead of letting the factory, the lenders, or a surprise tax issue take the wheel.
Manufacturer approval contingency that actually starts the clock. Everyone knows you need manufacturer approval, but most agreements treat it like a throwaway line. In Illinois, when a dealer submits the completed transfer application the manufacturer typically uses, along with the agreements for the proposed sale or transfer, the manufacturer’s response window is not supposed to be open ended. Your buy sell agreement should define what a complete submission means, who is responsible for delivering it, and what happens if the manufacturer claims the package is incomplete. It should also require cooperation from both sides to answer factory questions quickly, while protecting confidential business information with a tight confidentiality provision. Most importantly, it should give the parties a realistic outside date and a clear right to extend when the only remaining issue is manufacturer processing, not buyer or seller delay.
Right of first refusal planning before the factory reaches for it. You can have a highly negotiated deal with the buyer you want, and still wake up to a right of first refusal notice. Illinois law puts guardrails around this, including the concept that the selling dealer should receive the same consideration that was negotiated and that the proposed buyer can be entitled to reimbursement of reasonable expenses incurred in evaluating and negotiating the transfer. A smart agreement does not pretend ROFR cannot happen. It anticipates it. The purchase agreement should require that all consideration is clearly described and fully documented, including anything tied to real estate, consulting arrangements, or transition services. If there are side deals that are vague, the factory will argue it cannot match them, and that is where ROFR fights start. Your agreement should also spell out how the buyer’s expenses will be tracked and presented, how deposits are handled if ROFR is exercised, and how the parties will cooperate to minimize disruption to employees and the public.
Blue sky allocation that does not create a tax fight after the champagne. In dealership deals, the purchase price is often driven by goodwill, the franchise relationship, the customer base, the store’s brand, and the right to earn in that market. That is blue sky. It is also a tax and valuation minefield. Buyers want allocations that support amortization of certain intangibles. Sellers care about capital gain treatment and clean reporting. If the agreement does not lock down a purchase price allocation method, the parties can end up fighting after closing or, worse, filing inconsistent tax positions that invite trouble. Your agreement should address whether the deal is structured as an equity sale or an asset sale, the allocation categories, how working capital affects the final numbers, and how both sides will report the allocation consistently. It should also address allocations to noncompete covenants and consulting services, because those can shift tax treatment dramatically.
Floor plan payoff and lien release mechanics that make the handoff seamless. Floor plan is the bloodstream of the store. If the payoff process is sloppy, the lender can freeze the line, vehicles cannot be sold, and a closing can turn into a rescue mission. Your agreement should include detailed closing deliverables that cover payoff letters, per unit payoffs, curtailments, lien releases, and UCC terminations. It should deal with the real world inventory categories that cause trouble: in transit units, dealer trades, demos, service loaners, courtesy transportation vehicles, and any aged or damaged units with credits or chargebacks. It should also require the buyer to have floor plan financing lined up early enough to avoid a gap day where inventory financing is in limbo. When this clause is written correctly, the store does not feel a financing whiplash at closing. Sales and service keep moving.
Operating covenants during the approval window because value can leak fast. Dealership closings are rarely instantaneous. There is almost always a manufacturer approval period and a lender process that takes time. During that window, the seller is still operating the business, and the buyer is already economically invested in what is happening. The agreement should require the seller to operate in the ordinary course, maintain key personnel, keep up with factory sales and service obligations, and avoid unusual distributions, insider transactions, or inventory dumps that can distort performance metrics. It should also define what capital expenditures are permitted, how customer data and DMS access will be handled, and how the parties will communicate with employees and the manufacturer. This is the clause that prevents a deal from “closing on paper” while the business is quietly deteriorating in the background.
A buy sell agreement for an Illinois dealership should read like a dealership deal, not a generic small business template. If the document does not anticipate manufacturer approval realities, right of first refusal risk, blue sky allocation, floor plan mechanics, and operating covenants, the deal will be negotiated twice: once on paper and again in crisis mode.
If you are buying or selling a dealership in Illinois, DiTommaso Lubin, P.C. represents dealers in both transactional work and the disputes that follow when deals are drafted poorly. For a consultation, call 630-333-0333 or contact us online. This post is for general information and is not legal advice.