How Indemnification Clauses Affect Car Dealership Contracts
How Indemnification Clauses Affect Dealership Contracts
Owning and managing a car dealership is challenging. From auctions to finance agreements, navigating the legal realm of everything can be overwhelming. I am here to breakdown the tough legal stuff, so you feel more confident going into finance agreements.
In this article, I focus on something dealers see often in their finance agreements: indemnification. I’ll break down what it means, when you’ll see it, and how to navigate it to best support your business.
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What is Indemnification?
In simple terms, indemnification essentially means reimbursement. In many cases, it's where the finance company is entitled to reimbursement or indemnification from the dealer in relation to any claims not related to the finance company's activities.
This is largely related to the Holder Rule, a rule where a dealer could commit fraud (or an alleged fraud) on a consumer, and the consumer can actually sue the finance company for the fraud of the dealer. In cases like this, the finance company is entitled to demand repurchase/recourse or demand indemnification. This basically is the finance company saying, “dealer, you've got to pay us for all the attorney's fees we incur for having to defend this case against the consumer. Oh, and by the way, if there's a judgment against us, you have to pay for that, too." This is what an indemnification clause dictates.
Some dealer agreements with finance don't even have a recourse or repurchase provision. There'll be a no-recourse agreement, which is great for the dealer, but they'll have a heavy indemnification clause to make up for it.
What You Can Do to Protect Your Business
- Review your indemnification clause. The finance company may be seeking indemnification for something that is not covered by the clause.
- Contest the underlying allegations that are the reason why the finance company is invoking the indemnification clause.
- Resolve the underlying allegations.
- Work with the finance company toward a creative solution to keep the account with them despite the indemnification clause.
If you are looking for more support when it comes to indemnification clauses, you can find more information at www.georgiacarlaw.com. You can also book a strategy session with us here. We’ll personalize your counsel and guide you through everything to ensure your business is protected.
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