Buying or selling a business and thinking you can save money by making the sale by yourself?
There are numerous problems that can arise in the maze of contracts, leases and trading without sufficient legal involvement.
Contract of Sale
First of all, a contract of sale is imperative. It is not satisfactory to have only a written agreement or to just hand over the money, which unfortunately is quite a common issue. The REIQ business contract of sale contains important terms and warranties which protect both parties.
If you are obtaining finance to purchase a business your financier will require a copy of the signed business contract.
Stamp Duty Obligations
If you are buying a business you will need to pay stamp duty on the contract. Failure to pay stamp duty or not to enter into a business contract of sale to avoid the payment of duty is an offence under the Duties Act 2001.
Transferring the Lease
One of the most important aspects of buying or selling a business is making sure that the premises which the business trades from is correctly transferred to the new business owner. If you are selling a retail business it is most important to ensure the lease is transferred to the buyer in accordance with the procedures set out in the Retail Shop Leases Act 1994. If the correct disclosures are provided, in the right order, you will be released from all obligations under the lease and personal guarantees upon transfer of the lease.
If you do not transfer the lease correctly you may still be liable under the lease and personal guarantee.
Most people are unaware that for commercial premises a standard lease contains a provision providing that should you sell your business and transfer the lease to the buyer you are still liable under the current lease. If the buyer defaults under the lease the landlord will have rights to request you to pay for outstanding rental and legal costs due to the buyer’s default under the lease.
When negotiating a new lease you should request the lease be amended to allow for you to be released from the lease when you sell the business and transfer the lease. The contract may be conditional upon you obtaining the consent of the landlord to the transfer of the lease to you or being granted a new lease. It is important to know that when buying a business you will need to provide references and financial statements to the landlord in order for them to consent to you being a tenant.
The landlord may refuse your application and therefore as you will not have a lease for the premises in which to operate the business the contract cannot proceed. You should make sure that your contract contains a due diligence clause, which will allow you to make enquiries regarding the business and any licenses and permits you may need to operate the business.
Can I Terminate the Process?
If you have a due diligence clause and you are not satisfied with your results you may terminate the contract in your absolute discretion. For example when you a purchasing a restaurant business you will need to obtain a food licence. This licence is obtained from the local council and generally takes up to 30 days to obtain.
If you are purchasing a business, a restraint of trade or a non-competition is a must. This is a deed signed by all directors and shareholders of the company you are purchasing, which prevents them from setting up a related business to the one you are purchasing within a prescribed area from the premises and for a prescribed time. The restraint provisions must be reasonable
How We Can Help
Quinn & Scattini Lawyers regularly assist vendors and purchasers with their property and business purchases/sales. We are experienced in the process of buying or selling a business and ensure that each step of the way is completed correctly and efficiently in order to save you time, money and stress.
Our expert property lawyers are available at any of our local offices.