2016 Arizona Revised Statutes
Title 28 - Transportation
§ 28-4457 Franchise termination, cancellation or nonrenewal; good cause; changes

28-4457. Franchise termination, cancellation or nonrenewal; good cause; changes

A. Notwithstanding the terms, provisions or conditions of an agreement or franchise, the following are not good cause for the termination, cancellation or nonrenewal of a franchise:

1. The change of ownership of the franchisee's dealership. This paragraph does not authorize a change in ownership that would have the effect of the sale of the franchise without the manufacturer's or distributor's consent. The consent shall not be unreasonably withheld. The burden of establishing the reasonableness is on the franchisor.

2. The fact that the franchisee refused to purchase or accept delivery of a new motor vehicle, parts or accessories or any other commodity or service not ordered by the franchisee.

B. If a franchisor enters into or attempts to enter into a franchise, whether on termination or cancellation, on refusal to renew another franchise or on the establishment of an additional new motor vehicle dealership in a community where the same line-make is then represented, without first complying with this chapter, a license under this chapter shall not be issued to that franchisee or proposed franchisee to engage in the business of selling new motor vehicles that are manufactured or distributed by that franchisor.

C. In determining whether good cause has been established for terminating, canceling or not renewing a franchise, the administrative law judge shall consider the existing circumstances, including the following:

1. Amount of business transacted by the franchisee.

2. Investment necessarily made and obligations incurred by the franchisee in the performance of the franchisee's part of the franchise.

3. Permanency of the investment.

4. Whether it is injurious to the public welfare for the business of the franchisee to be discontinued.

5. Whether the franchisee has adequate new motor vehicle facilities, equipment, parts and qualified management, sales and service personnel to reasonably provide consumer care for the new motor vehicles sold at retail by the franchisee and any other new motor vehicle of the same line-make.

6. Whether the franchisee refuses to honor warranties of the franchisor to be performed by the franchisee if the franchisor reimburses the franchisee for the warranty work performed by the franchisee.

7. Except as provided in subsection A:

(a) Failure by the franchisee to substantially comply with those requirements of the franchise that are determined by the administrative law judge to be reasonable and material.

(b) Bad faith by the franchisee in complying with those terms of the franchise that are determined by the administrative law judge to be reasonable and material.

D. If failure by the franchisee to substantially comply with a reasonable and material provision of the franchise relates to the performance of sales or service by the franchisee, good cause is established if all of the following are true:

1. The franchisor notifies the franchisee of the failure in writing.

2. The notice states that it is provided for failure of performance pursuant to this chapter.

3. The franchisee is provided a reasonable opportunity in which to exert good faith efforts to carry out the provisions of the franchise. The reasonable opportunity provided shall be over a period of at least one hundred eighty days.

4. The franchisee does not demonstrate substantial compliance with the franchisor's performance standards during that period and the failure to demonstrate compliance is not due to factors controlled by the franchisor.

E. In determining whether good cause has been established for entering into an additional franchise for the same line-make the administrative law judge shall consider the existing circumstances including the following:

1. Amount of business transacted by other franchisees of the same line-make in that community.

2. Investment necessarily made and obligations incurred by other franchisees of the same line-make in that community in the performance of their part of their franchises.

3. Whether the franchisees of the same line-make in that community are providing adequate consumer care for the new motor vehicle products of the line-make, including the adequacy of new motor vehicle dealer sales and service facilities, equipment, supply of parts and qualified management, sales and service personnel.

4. The economic impact on existing franchisees of the same line-make due to the addition of a franchise.

5. The effect on the retail motor vehicle business and the consuming public.

F. On the termination or nonrenewal of a franchise for any reason, including the cessation of a line-make but not including a voluntary termination of the franchise agreement by the franchisee or a termination by the franchisor based on good cause as determined pursuant to this section, the franchisor must do all of the following:

1. Pay the franchisee being terminated the fair market value of the franchise as of the date of the notice of termination or nonrenewal or twelve months before the date of notice, whichever is greater. The fair market value shall be the goodwill value of the franchisee's franchise in the franchisee's community as of the relevant date.

2. Reimburse the franchisee for the cost of any facility upgrades and renovations required by the franchisor within three years before the termination or nonrenewal less any offsets actually received by the franchisee from the franchisor toward the upgrades or renovations, including stipends, credits and other subsidies.

3. Repurchase any data processing programs, software and equipment required by the franchisor for communication of sales, service, warranty or other information to the franchisor or report data to the franchisor that meets the following criteria:

(a) Was used by the franchisee exclusively for the line-make vehicle covered by the dealer agreement being terminated or not renewed.

(b) Was purchased by the franchisee in the three year period before the termination or nonrenewal of the dealer agreement or was leased by the franchisee before the effective date of the termination or nonrenewal, except that the franchisor shall only be responsible for payments under the lease for a period not to exceed three years.

4. Pay to the franchisee an amount equal to twelve months' rent at the fair market rental value for the real property, except that if the real property is leased from a third party who is unrelated to the franchisee, the amount to be paid by the franchisor shall equal twelve months' rent pursuant to the current lease of the real property in effect at the time of the termination or nonrenewal. If the termination or nonrenewal relates to fewer than all of the franchises operated by the franchisee at a single location, the amount to be paid by the franchisor pursuant to this paragraph shall be based on the percentage of the total square footage attributed to the franchise being terminated or not renewed at the time of the termination or nonrenewal.

5. Compensate the franchisee for all new, unused and undamaged parts listed in the manufacturer's current parts catalog and still in the original merchandising packaging. The prices for the parts are the prices in effect as of the effective date of the termination or nonrenewal of the franchise, less any applicable allowances, credits or subsidies actually received by the franchisee from the franchisor.

6. Compensate the franchisee for the fair market value of all undamaged, except for ordinary wear and tear, and unmodified special tools, equipment and signage that are required by the franchisor and that are acquired by the franchisee within the three year period before the termination or nonrenewal.

7. Compensate the franchisee at the dealer's net acquisition cost for all new, undamaged, unmodified and unsold vehicle inventory of the current model year and one model year before that is acquired from the manufacturer or from another same line-make dealer in the ordinary course of business before the effective date of the termination or nonrenewal if the vehicle has less than five hundred miles registered on the odometer.

G. Payments made pursuant to subsection F are in addition to any other payments required by the laws of this state or the applicable franchise agreement. Payments shall be made to the franchisee no later than ninety days after the effective date of the termination or nonrenewal of the dealer agreement and a showing that the franchisee can deliver good and clear title to the items described in subsection F.