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CONTRACT CANCELLATION OPTION AGREEMENT
November 28, 2020 at 2:00 PM
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Remind your team regarding Contract Cancellation Option Charts & Rules Concerning Fees

We have seen a number of lawsuits and demand letters accusing dealerships of using Contract Cancellation Option Agreements that are not compliant with the law. We have heard numerous questions from our dealers on varying types of incorrect charts they have seen and cancellation fees:
-“Restocking fee is always $500 right?”
-“The deadline is 2 days right?”
-“How many miles?”

In hopes of clearing up confusion and in order to protect yourselves, we are summarizing parts of California Vehicle Code VEH § 11713.21 regarding Contract Cancellation Options for your reference:

Purchase Price for Contract Cancellation Option Chart:
Vehicle Cash Price of $5,000 or less = $75 max
Vehicle Cash Price between $5,001 and $10,000 = $150 max
Vehicle Cash Price between $10,001 and $30,000 = $250 max
Vehicle Cash Price between $30,001 and $40,000 = 1% of Vehicle Cash Purchase Price

*The cash price DOES NOT include: document processing charges, charges to electronically register or transfer the vehicle, taxes imposed on the sale, pollution control certification fees, prior credit or lease balance on property being traded in, the amount charged for a service contract, the amount charged for a theft deterrent system, the amount charged for a surface protection product, the amount charged for an optional debt cancellation agreement, and the amount charged for a contract cancellation option agreement.

Restocking Fee Chart:
Vehicle Cash Price of $5,000 or less = $175 max
Vehicle Cash Price between $5,001 and $9,999.99 = $350 max
Vehicle Cash Price between $10,000 or more = $500 max

Time Specified:
A statement specifying the time which the buyer must exercise the right to cancel the purchase under the contract cancellation option and return the vehicle to the dealer. The dealer shall not specify a time that is earlier than the dealer’s close of business on the SECOND day following the day on which the vehicle was originally delivered to the buyer by the dealer.

250 Miles Minimum:
Your dealership should include a statement specifying the maximum number of miles that the vehicle may be driven after its original delivery by the dealer to the buyer so it can remain eligible for cancellation under the contract cancellation option. A dealer shall not specify fewer than 250 MILES in the contract cancellation option agreement. Under the law, it cannot be less than 250 miles.

Other Notable Requirements:
- a contract cancellation option agreement shall be contained in a document separate from the conditional sales contract
-must include the name of the seller and the buyer.
-must include a description and the Vehicle Identification Number of the vehicle purchased.
-There are other requirements and legalities regarding the Contract Cancellation Contract that can be found in California Vehicle Code VEH § 11713.21 and/or by consulting with an attorney.

The information provided by Dealer XT is not intended to constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. You should contact your attorney to obtain advice with respect to any particular legal matter.