June 13, 2019 in Commercial Law
We have identified an apparent gap in Post-Hayne Report Reforms.
As part of the Hayne Report Reforms, changes are to be made to the jurisdiction of the Australian Financial Complaints Authority (AFCA) from 1 July 2019 to extend the normal 6-year limitation period to commence litigation by permitting AFCA to deal with matters arising after 1 January 2008.
This extension in the jurisdiction of AFCA is however limited to Credit Facilities not exceeding $5m.
We have raised this matter with the Department of Treasury which is dealing with this area of Post-Hayne Reforms and they have advised that they are considering whether and how they will deal with this gap.
Our view is that, as a matter of common sense, it would be inconsistent to not implement an extension of the normal 6-year limitation period similar to the extensions of time in relation to Credit Facilities under $5m under the AFCA.
Aggrieved businesses and farmers with facilities over $5m are likely to have suffered greater losses. They may well now be in a worse financial position than parties with Credit Facilities under $5m who are able to seek compensation through AFCA. It would appear to be inconsistent and inequitable to not provide a similar extension to these businesses and farmers. Additionally, these parties would need to fund their own actions so that there would be no cost to Government.
We think this matter needs to be raised with politicians by aggrieved farmers and on their behalf by bodies such as the National Farmers Federation (NFF) to ensure this unfair and unjust gap is closed. We have notified the NFF of this issue of concern.
June 12, 2019 in Commercial Law
The Palaszczuk Government is being heavy handed with Queensland farmers over the application of its Vegetation Management Laws and often seeking land as compensation for alleged tree clearing breaches, says a leading legal firm.
Creevey Russell Lawyers Principal Dan Creevey said the firm had found cases where the Department of Natural Resources had taken an uncompromising approach to individuals found in breach of the legislation, with prosecutions and restoration notices imposed when there were opportunities to negotiate alternative outcomes.
The Vegetation Management Act 1999 (Qld) has been the subject of much debate, following amendments made by the State Government in 2018,” Mr Creevey said.
“When restoration notices are issued for alleged tree clearing offences, they can have serious and long-lasting impact on a farmer’s rights. There needs to be greater assistance given to farmers to help them comply with their obligations.
“In recent times, our office has observed the department taking a strict approach against those who have breached the Act by clearing land they were not authorised to do so. In circumstances where it may be possible to negotiate an alternative outcome, the department is taking a strict approach in terms of what it will and will not discuss, often seeking a significantly larger amount of land by way of compensation in instances of a land exchange.”
Mr Creevey said farmers were strongly advised to obtain legal advice on land clearing matters.
“The consequences of not understanding your obligations can have significant financial impacts, as well as significant impacts on your ability to use your property,” he said.
Mr Creevey said the constant changes to government legislation and policy makes it increasingly difficult for farmers to apply their trade and also be aware of the changes.
“Whilst ignorance of the law is not an excuse, the constant changes to the relevant legislation, regulations, and policy makes it increasingly difficult for farmers to know what they are and are not entitled to do with their properties,” he said.
“Queensland families need farmers. Whether or not their product is cattle, crops, or something else, farmers want to get the maximum benefit from the land they own. Government should be aware that farmers work very long hours. They often do not have the time to sit at a computer and research the constant changes to the legislation to identify what they can and cannot do on their property.”
June 10, 2019 in Commercial Law
Special Council Helen Kay has accepted a position as a Partner with Creevey Russell Lawyers, with the leading Queensland legal firm’s partnership ranks now 50 per cent female.
A highly experienced senior commercial and property lawyer, Ms Kay joined the firm as a Special Counsel in January this year and has moved into partnership alongside Co-Principals Dan Creevey and Clare Creevey and accredited specialist personal injuries lawyer Tom Rynders.
Dan Creevey said Ms Kay accepting the partnership with the firm was an exciting development for Creevey Russell Lawyers, which this year is celebrating its 10th anniversary.
“Helen has been a tremendous asset for the firm since she came to Creevey Russell after working within top tier firms in the United Kingdom and Australia as well as running her own legal practice and heading up various other successful commercial practices,” he said.
“Creevey Russell has benefited from Helen’s experience in corporate and commercial matters including business sales and acquisitions, leasing, franchising, corporate structuring and commercial property transactions. Helen is passionate about working closely with her clients to understand their business and help them to achieve their strategic goals.”
Clare Creevey said the firm was proud and delighted that 50 per cent of its partners were women.
“It’s very exciting to have Helen become a Partner with Creevey Russell Lawyers as she has already brought so much to the firm,” Ms Creevey said.
“It’s also a proud milestone for the firm to have women as 50 per cent of our equity partners. We have been committed to building a gender equal firm, and addressing economic inequality for women is an important issue for the legal community.”
Ms Kay said she was excited about the opportunity to be a Partner with Creevey Russell Lawyers.
“Creevey Russell is a forward thinking law firm which offers its clients exceptional service across all areas of the law,” she said.
June 9, 2019 in Commercial Law
If you supply services or goods combined with services and offer your customers warranties against defects, you will need to comply with new warranty requirements which came into effect on 9 June 2019.
The Office of Fair Trading explains that a warranty against defects is “a representation to a customer that if goods or services provided (or part of them) are defective, you will provide a remedy. A representation only counts as a warranty against defects if it’s made at the time the goods or services are provided.”
These warranties are voluntary but, if given, will apply in addition to any consumer guarantees which are mandated under Part 3-2 of Schedule 2 of the Competition and Consumer Act 2010 (Cth) (Australian Consumer Law or ACL).
From 9 June 2019, any document that ‘evidences’ a warranty against defects, such as a warranty card, warranty statement or any other document that sets out, or refers to, the terms of an express warranty against defects must comply with the prescribed form and content requirements.
What you need to do
You will need to include mandatory wording in all your warranty documentation, for example, your:
- customer contracts;
- terms and conditions/terms of trade;
- marketing materials;
- receipts; and
- product packaging.
Suppliers of goods only
The ACL already requires businesses who supply goods to consumers and offer a warranty against defects to include mandatory text in their documentation.
There will therefore be no change to the current mandatory text that traders use for warranties against defects when supplying goods alone.
Suppliers of services only
If you offer a warranty against defects when supplying services, you will need to display the following mandatory text with the service:
Our services come with guarantees that cannot be excluded under the Australian Consumer Law. For major failures with the service, you are entitled:
· to cancel your service contract with us; and
· to a refund for the unused portion, or to compensation for its reduced value.
You are also entitled to be compensated for any other reasonably foreseeable loss or damage.
If the failure does not amount to a major failure, you are entitled to have problems with the service rectified in a reasonable time and, if this is not done, to cancel your contract and obtain a refund for the unused portion of the contract.
* Note that the above mandatory wording must be available with the service itself. It is not sufficient to refer your consumers to information on a website or in-store.
Suppliers of goods combined with services
If you offer a warranty against defects when supplying goods combined with services, you will need to display the following mandatory text with the goods and services:
Our goods and services come with guarantees that cannot be excluded under the Australian Consumer Law. For major failures with the service, you are entitled:
· to cancel your service contract with us; and
· to a refund for the unused portion, or to compensation for its reduced value.
You are also entitled to choose a refund or replacement for major failures with goods. If a failure with the goods or a service does not amount to a major failure, you are entitled to have the failure rectified in a reasonable time. If this is not done you are entitled to a refund for the goods and to cancel the contract for the service and obtain a refund of any unused portion. You are also entitled to be compensated for any other reasonably foreseeable loss or damage from a failure in the goods or service.
* Note that the above mandatory wording must be available with the goods and services. It is not sufficient to refer your consumers to information on a website or in-store.
Other warranty requirements
The ACL requires that you present your warranty documentation in a particular way and requires it to include specific information. For example, your warranty documentation must also:
- be written in plain language and legible;
- be provided to your customers where the supply takes place, or at the time it takes place or be made available with the product;
- include details of what your business will do if the goods or services are defective;
- explain clearly what your customer must do when a defect arises;
- set out your contact information;
- state how long the warranty will apply for;
- explain how your customer must make a claim under warranty;
- state who is responsible for any expenses in making a warranty claim (e.g. postage); and
- contain a statement that the warranty is additional to the consumer’s rights and remedies at law.
The ACCC may impose penalties on businesses that do not comply with these requirements, therefore you should seek legal advice before offering a warranty against defects to ensure that you are complying with the ACL requirements.
Our commercial team can provide advice regarding your obligations and assist with reviewing or drafting your warranty documentation.
Please contact Helen Kay on or call (07) 3009 6555 for assistance.
May 22, 2019 in Commercial Law
Many business owners worry that they will be unable to sell their franchise if they want to exit the business for whatever reason. Understanding what you would need to do to sell your franchise, even if you are not thinking about it just yet, is important for the owner of any franchise business.
The sale of a franchise business is much the same as a normal business sale but is complicated by the addition of a few extra hurdles to jump over before money and keys can exchange hands between buyer and seller. You will need to comply with both the franchise agreement and the Franchising Code of Conduct throughout the sale process and ensure that all requirements are met.
The sale of a franchise business also means that there is another party involved in the transaction (namely the franchisor and/or their solicitors) who will have certain requirements which need to be met during the process. This can pose additional challenges.
Conditions in your Franchise Agreement
The most important step in selling a franchise business is to understand the requirements of your franchise agreement, the steps to transfer your business and the franchisor’s rights.
The franchise agreement you entered into when you became a franchisee will more than likely include a provision which restricts you from selling your franchise without first obtaining consent from the franchisor. Before providing consent your franchisor may want to obtain and review certain information from the prospective franchisee to determine if they are a suitable candidate for the franchise business. Your franchisor’s consent could also be subject to a number of other conditions including the prospective franchisee undertaking any relevant training, all amounts owing to the franchisor being paid up to date and the execution of any documents the franchisor deems necessary to document the assignment of the franchise agreement.
Your franchise agreement could also include a ‘first right of refusal’ requiring the business to be offered to your franchisor before it is offered to the public and the process for this to occur. Not adhering to these requirements could result in a breach of the franchise agreement affecting both the sale and your franchise business.
Requirements of the Franchising Code of Conduct
It is also crucially important that you understand the requirements of the Franchising Code of Conduct when selling a franchise business, this will help put you in the driving seat with the franchisor and the buyer.
The Franchising Code of Conduct sets out a number of requirements with respect to the transfer of a franchise agreement including that:
- a request for franchisor’s consent must be in writing;
- the request for franchisor’s consent must include all information the franchisor would reasonably require and expect to be given to make an informed decision;
- the franchisor must advise in writing whether consent is given and if it is not given the reasons why not; and
- the franchisor must not unreasonably withhold consent.
Often, franchisees worry that their franchisor may simply not co-operate with their proposed sale after-all what is in it for them?
However, the Franchising Code of Conduct seeks to prevent this and requires that if the franchisor does not advise in writing that consent has been given within 42 days (of the later of the date the request is made; and the if the franchisor seeks further information – the date the last of the information is provided to the franchisor) then consent is taken to have been given and that consent is irrevocable.
These are just some of the conditions that the Franchising Code of Conduct sets out with respect to a transfer of a franchise business. It is imperative that the requirements under the Franchising Code of Conduct are understood and met in order to ensure a successful sale of your franchise business.
Carefully Drafted Contract Conditions
In order to protect your interests, the business sale contract must state that the settlement of the sale is subject to and conditional upon you obtaining franchisor’s consent to transfer the business. The business sale contract must also allow you sufficient time to obtain franchisor’s consent.
If your franchisor does not consent to the transfer of the franchise this will leave you unable to complete settlement. In those circumstances, if your contract does not include a condition which makes settlement of the sale conditional upon you obtaining your franchisor’s consent, the buyer may seek damages from you for losses they have suffered, including but not limited to their legal costs.
Other matters to consider
- Restraint of trade – your business sale contract will likely include a restraint of trade restricting you from conducting certain activities that are in competition with those of the business you are selling, within a certain distance from the business premises and for a certain period of time following completion of the matter. When selling a franchise business it is important to review the restraint of trade contained in your franchise agreement (if any) as this restraint could be for a longer period of time, within a broader area from the business premises and may even restrict additional activities.
- Transfer of Lease – if the business operates out of leased premises, you will also need to consider the assignment of your lease for the premises. This process will be dependent upon whether you or your franchisor is the tenant under the Lease. If your franchisor is the tenant there will likely need to be an assignment of the licence to occupy and the landlord will drive this process. If you are tenant you will need to assign the lease yourself and your landlord will provide the documents for the assignment.
These are just a number of key issues that you will need to be aware of when selling your franchise business and, as you will see, knowledge of your legal documents and the statutory requirements under the Franchising Code of Conduct are key to a successful sale.
If you require any assistance with the sale of your business or with any other commercial legal issue, please do not hesitate to contact our dedicated commercial team.
Ph: +61 7 4617 8777
April 8, 2019 in Commercial Law
Slapping trespassing animal activists with on the spot fines is a weak deterrent and offenders need to be brought before the courts, says leading agribusiness legal firm Creevey Russell Lawyers.
Creevey Russell Lawyers Principal Dan Creevey said government needs to do more to protect those businesses being impacted by animal activist groups.
Mr Creevey said the recently announced Queensland Government plan to crackdown on animal rights protesters by giving police and agricultural officers power to issue on the spot fines to trespassing extremists is inadequate.
“Issuing of fines is inadequate and is a weak deterrent,” he said. “Court proceedings need to follow, and courts should consider recording convictions against those breaking the law.
“We live in a democratic society. If activists want to protest, they have a right to do so, but there are right ways and wrong ways to do things, and trespassing on land, and impacting businesses, is not the right way.”
Mr Creevey said the economic impact of the actions of animal activist groups entering onto private property, chaining themselves to equipment, and disrupting businesses is significant.
“During the period of time the activists are present on their property, farmers and businesses are unable to operate effectively, costing them revenue,” he said.
“Farmers and businesses should be able to go to work and go about their business without fear of being impacted by animal activist groups.”
Mr Creevey said although farmers and businesses may be frustrated as a result of these actions, he urged them to seek appropriate assistance.
“If farmers or businesses are impacted by the protests of animal activist groups, we strongly encourage individuals to not take matters into their own hands. If you are in this situation, contact the police and other authorities urgently and obtain their assistance.”
Further Enquirers, please contact our Litigation Team:
PrincipalPh: +61 7 4617 8777
April 5, 2019 in Commercial Law
Choosing the perfect premises to run your business from can be a tough process, but it is just the first step in securing your location and opening your business’ doors to the public. The process of lease negotiation and the agreement that is ultimately reached between a landlord and a tenant can set the tone of the relationship between the parties for years to come. Although you and your landlord may have reached agreement on many of the commercial terms of the lease agreement (and may have even entered into a heads of agreement setting out those terms) it is crucial that the lease is properly reviewed and negotiated and that you receive the appropriate advice so that you are aware of all of your rights and obligations under the lease.
#1 WHAT CAN BE NEGOTIATED
As a tenant you may feel like you have no power when it comes to negotiating the terms of your lease. You may find yourself questioning which lease terms are actually negotiable and which are already ‘set in stone’. Technically speaking all of the lease terms are open to negotiation including the rental amount, term of the agreement, obligations to pay outgoings, fitout and the make good requirements etc. A number of the additional but still fundamental terms and conditions may not have been covered in initial discussions with the landlord or in any heads of agreement and therefore still need to be negotiated.
It’s important to remember that if you don’t make requests and raise concerns with your landlord at the outset you may not have another opportunity to re-negotiate the terms later on. On the other hand, there are a number of terms and conditions that are considered to be ‘standard’ for certain types of leases. A solicitor will be able to provide guidance as to which clauses of the lease are the norm considering the type of lease being entered into and which points you should consider pushing back on with your landlord.
#2 BEWARE THE LANDLORD FRIENDLY LEASE
The landlord’s solicitor will typically prepare the lease. In addition to many of the lease terms and conditions not having been discussed, the landlord’s solicitors will almost certainly present their standard lease weighted in the landlords favour. This ‘landlord friendly’ lease could include a requirement for additional fees to be paid to the landlord (including open ended administrative fees) or legal and other costs associated with negotiation and preparation of the lease even if this was not agreed (unless the lease is a retail shop lease in which case the legislation prevents the landlord from charging the tenant for these costs), or other clauses which are to the tenant’s detriment.
With the landlord’s solicitor preparing the lease you are also relying on the landlord having provided clear and fulsome instructions to their representative. If any agreements between you and your landlord are not communicated or miscommunicated to their solicitors it is important that you have a second set of eyes review the lease to confirm it reflects the agreement reached.
The solicitor you engage should conduct a full review of the lease, take your instructions and negotiate amendments to the document in order to strike a fair balance between the parties.
#3 KEY TERMS AND CONDITIONS
The terms of the lease negotiated could remain in effect for a number of years and could have potential impact on your business operations. For example, the permitted use under the lease must reflect all business activities you intend to carry out on the premises. If this is not properly negotiated and described in the lease your business activities themselves could be a breach of the lease and cause for the landlord to terminate the lease.
Some other key terms and conditions of the lease which should be properly negotiated include:
- Repair obligations – as a tenant you must be aware of when you are responsible for repairing damage to the premises. For example, are you responsible for repairs to the premises where damage is caused by flooding or some other naturally occurring event? Must you repair damage caused by vandalism? What if your staff are responsible for the damage?
- Terms of Guarantee – if you are entering into a lease as a director of a corporate entity, and the lease contains a director’s guarantee, you must ensure that you fully understand the repercussions of that guarantee and when you will be personally responsible for complying with the obligations of the corporate tenant entity.
- Entire Agreement – most commercial leases will include an ‘entire agreement’ clause which states that the agreement executed by the parties represents the entirety of the agreement. The effect of this clause is that previous correspondence or representations by either party (including any heads of agreement) will not be deemed to be part of the agreement and therefore not binding on either party. It is important that this clause is included in your lease so that the landlord is not able to rely on any previous written or oral agreements regarding terms and conditions that are not included in the lease. The flip side of this is that you must ensure the lease actually reflects what was agreed under your heads of agreement (or otherwise) as you will not be able to rely upon any previous agreements, statements or representations.
- Redevelopment – if your commercial lease contains a redevelopment clause the landlord may be able to terminate the lease prior to the expiry date to carry out major redevelopment works. If this clause is included in your lease you must ensure the lease requires that the landlord adequately compensate your for your loss. You may not want to accept a lease which contains a redevelopment clause as this will greatly impact your business operations.
The terms of the lease and therefore your rights and obligations will likely be binding for a number of years following execution so obtaining advice prior to signing is essential.
Ph: +61 7 4617 8777
March 20, 2019 in Commercial Law
Selling a business is a complex process and requires many boxes to be checked to ensure a smooth transition from one owner to another. The first and often overlooked stage is seller’s due diligence.
The purpose of seller’s due diligence is for the seller and their advisors to investigate the business, its assets and business relationships to make sure all issues, including some that may not have even been thought of, are ironed out before the business goes on market.
A buyer will almost certainly carry out a thorough due diligence of a business before they commit to buy it, usually during a due diligence period under contract, and you can guarantee that if there is a problem, their advisers will find it. Each issue with the business that is discovered will erode the buyer’s perception of the value of the business and doubt will start to creep in.
If you are considering selling your business in the near future we recommend reviewing and checking off the following legal factors:
Is Your Business Name Registered?
Although this step may seem like a no brainer it is crucial to check your business name is registered and that it is registered to the current legal owner of the business.
If you have your Certificate of Business Name Registration this will not be an issue. If however you are unable to locate your certificate you can easily check on the ASIC Connect site.
Once you have searched your business name you will be able to check:
- who owns the business name;
- the company’s ACN (if owner by a company);
- if it is currently registered; and
- the registration renewal date.
If any of these details are not what you believe they should be, they will need to be rectified before you list your business for sale.
Are The ASIC Details Correct?
Another item to consider are the ASIC details of the company. To find out these details, you will require a Company search of your business. You are able to purchase a current company extract from ASIC Connect. The search will show you who the ABN is registered to.
By checking who the ABN is registered to you will also be able to see the directors of the business. You will need to consider if there are any directors listed who may not agree to provide personal guarantee to transfer the business. If you think there may be issues we recommend you engage a solicitor to advise you regarding removing their name(s) from the company register etc.
Like our business name, you will also need to check the ABN registration is current and that the business is listed for GST. If it is not, you may need to do so prior to putting your business on the market.
You will also need to know your ASIC Login details. This is important as you will need to be able to login to transfer the business name to the new owner at settlement.
What PPSR Charges Are Registered Against Your Business?
It is important to check the Personal Property Security Register (PPSR) for any third party interests that may be lodged against your business. A prudent search would include a search of your ACN, ABN and business name. Some of these charges you may not be aware of, or may be outdated and will need to be removed prior to the sale of your business.
It is vital to conduct and check the PPSR search as it may show items that will deter potential buyers. A long list will be off-putting to many buyers as it may lead them to think that a business is run on credit.
If obsolete security interests are registered against the business, for example in favour of a previous supplier, you or your solicitor will need to obtain releases.
Have You Got A List Of Plant And Equipment?
Prior to putting your business on the market you will need to compile a list of all of the business assets. The list will need to include all plant and equipment, furniture and fittings that will be handed over to the buyer at settlement. You should also consider preparing a separate list clearly identifying anything that is specially excluded from the sale, e.g. the owner’s motor vehicle(s) or pieces of art work located at the premises.
If any of your businesses equipment is rented or leased, and the buyer wishes to take over the lease or rental agreement, you will need to contact the owner and arrange for transfer at settlement. The buyer will need to review the equipment lease or hire agreement and a deed of novation may be required.
You must consider all of these things early on in the piece and be open and honest as it may also affect the value of your business.
Is Your Lease Ready To Be Transferred?
To sell your business you will need to provide the buyer with a current, valid registered lease. Along with a copy of the registered lease you will need copies of current invoice for rent and outgoings such as utilities.
If your premises are retail premises you will also need to provide various disclosure statements.
You need to review your lease and determine the transfer or assignment of lease requirements and the length of the term left to run (including any available further terms). If the lease term is too short this should be addressed.
You may also need to consider whether your landlord will be willing to consent to a transfer the existing lease to the buyer. If they are not you will need consent from them to prepare a new lease. If this is required, a commercial lawyer will be able to assist you in the preparation of a new lease.
If on the other hand your landlord is willing to transfer the lease, a deed of consent to assign will be required. This will allow for a smooth transition of the lease from your name to the buyers.
Another item you will need to discuss with your landlord is the transfer and release from all obligations under the lease and any personal guarantees you have provided.
Overall, this checklist provides a broad overview of some of the main things you need to consider from a Legal Due Diligence perspective before putting your business on the market. We recommend discussing this with your broker and consulting a solicitor as this list is not extensive and requires experience in business sales.
There are other things that can be reviewed in a more in depth Seller’s Legal Due Diligence, depending on the nature of the business, for example:
- the current employment contracts;
- arrangements in place with suppliers;
- client agreements; and
- licences and permits required to operate the business.
As well as looking as the legal aspects you will also need to engage with your accountant to review the financial aspects of the business.
Please contact our Commercial Legal Team if you would like assistance with buying or selling a business or with any other commercial legal issue.
You may also be interested to read our article on Tips to Avoid the Main Issues that Can Derail a Business Sale.
Primary producers who have battled drought and flood along with continually challenging economic conditions have been dealt yet another blow with a Federal Court ruling against a pastoral holder who applied to upgrade her tenure to freehold.
Creevey Russell Lawyers Principal Dan Creevey said the refusal by Justice John Reeves in the Federal Court to grant an order by Sophie Pate that native title did not exist over her cattle property near Carmila in North Queensland was “another nail in the coffin for primary producers” and should be appealed.
“Just when you thought it can’t get any harder for primary producers, the Federal Court has cast a shadow over the ability to obtain a determination that native title does not exist over country, and therefore the ability to freehold that property,” he said.
Mr Creevey said Ms Pate sought to upgrade her tenure to freehold and commenced a non-claimant application seeking an order native title did not exist over her property.
“The application was not contested and there wasn’t a native title claim filed in response, with the applicant arguing the court could infer no native title existed on her land,” Mr Creevey said.
“But Justice Reeves ruled even though the application was unopposed, the applicant must prove on the balance of probabilities that native title did not exist. He found to make an order that native title did not exist would be contrary to the objectives of the Native Title Act 1993.”
Mr Creevey said the Reeves judgment has foreshadowed a view on the Native Title Act which may result in a failure of the application no matter how strong the evidence that native title does not exist.
“The Court arrived at a conclusion in the Pate case that a negative determination of native title would prevent any future application for compensation against the State for loss of native title rights and would be contrary to the objects and purposes of the Native Title Act,” he said.
“The concern arising from this is that someone, somewhere may have an unexercised native title claim but that granting an application for a determination that native title does not exist will forever prevent that right being exercised.
“This is despite a section in the Native Title Act which provides expressly for the reservation of compensation claims against the state when non claimant application provisions are utilised.
“At the moment the Court has only expressed a qualified view on the state of the law but if that view is confirmed, freeholding of any country where native title has not been extinguished will not be on option.
“The opportunity to persuade the Court of a contrary view should not be missed but will require the joining of forces to promote a favourable outcome.”
Further Enquirers, please contact our Litigation Team:
Ph: +61 7 4617 8777
Once you have made the decision to sell your business and found a buyer willing to pay the asking price it can be a huge relief. But there is a long road to travel between receiving the offer to purchase (which is usually made by way of a non-binding expression of interest through your broker), to the actual settlement of the business sale.
A business sale agreement still needs to be negotiated, agreed and signed by the parties to make the offer binding and then all the conditions in the contract need to be satisfied (or waived).
One of the main conditions will be the buyer obtaining suitable finance. This is outside the control of the seller and rests entirely on the buyer’s ability to finance the business purchase. There are however other conditions and issues that could arise within a business sale transaction which could lead to the buyer pulling out of the purchase either by not signing the binding business sale agreement or by rescinding or terminating the agreement.
A prudent seller should consider these issues, seek advice and take steps to avoid these issues derailing their business sale before going to market. Here are some top tips on what to watch out for and how to avoid these being an issue for your business sale:
Issue #1: buyer gets cold feet
People don’t like surprises, especially if you have a nervous buyer who does not understand all the nuances of buying (or running) a business.
There are obvious things that could lead a buyer to think that there is something wrong with your business, for example:
- Finances not being readily available (‘What are they trying to hide?’). Make sure you have your last 3 years’ accounts, BAS statements and POS records ready to provide to a buyer who has signed a confidentiality agreement
- The business name not being registered to the seller – if they are paying an amount for goodwill the seller will expect the Intellectual Property in the business to be robust.
- Long lists of charges registered against the business on the Personal Properties Securities Register (PPSR) – this may indicate to a buyer that the business runs on credit or was struggling. (‘Who else do they owe money to?’).
Tips to avoid the issue: sort out any potential issues.
We regularly come across issues in a business sale that should have been addressed by the seller before the business went on the market (more commonly when the business is being sold privately without a broker). If you sell your business through a broker they will analyse the business beforehand and identify any matters that are likely to negatively impact upon the sale price or cause problems down the line. Engaging a commercial lawyer to conduct a Seller’s Due Diligence early on in the piece can also be useful in flushing out and addressing these issues, they can help you to:
- Ensure that the business name is registered to the seller (for example where an old business partner has it in their personal name or it is simply not registered). The same goes for a trademark.
- Discharge any old PPSR charges (for example from previous supply arrangements) so you don’t need to provide the buyer with covenants or delay settlement.
- Ensure that all key contracts are documented – handshake arrangements have no value to a buyer so it is important to get all key customer and supply agreements in writing.
- Ensure that you have everything you need to complete the business sale agreement, for example all schedules, as it is preferable to send across a complete first draft contract to the buyer.
- Address any issues with your lease.
Issue #2: landlord won’t accept the new tenant
If you lease your business premises, the business sale agreement will need to be conditional upon the assignment of lease to the buyer. But what if the landlord won’t accept the new tenant? In that case, the conditions regarding landlord’s consent to assign the lease will not be satisfied and the contract will fall over.
Tips to avoid the issue: Understand the lease and communicate with your landlord
- Speak to your landlord – If the sale is not highly confidential, have conversations with the landlord early on in the piece so that you are both on the same page.
- Vet your buyer – Determine what the landlord’s priorities are and make sure that the buyer ticks their boxes (the higher offer might not be the better offer if the landlord won’t accept the buyer).
- Review the lease: – Make sure that you are aware of all the assignment conditions in the lease and that these are notified to the buyer. For example, that they need to provide personal guarantees, a bond or a bank guarantee and how much that will be for (they will need to factor this into their financial analysis when determining whether they can buy your business or not).
Issue #3: The lease is too onerous
The buyer may decide after reviewing the lease that it is not ‘satisfactory’ and not to go ahead with the assignment.
This is likely to occur where the lease is onerous or if the lease term is too short and the landlord is unwilling to amend it to provide for further options to renew or grant the buyer a new lease for a longer term. This is likely to occur where:
- The landlord does not want the buyer to become its tenant; or
- Where the landlord has plans to redevelop the premises and there is no redevelopment clause in the lease.
Tips to avoid the issue: Make sure you understand your lease
- Review your lease before listing your business for sale – conduct a seller’s due diligence and make a plan to address any issues.
- Where you have a lease with only a short term left to run and no further options it is worth addressing this before you go to market.
- Consider negotiating further option terms which are likely to be more attractive to a buyer and their financiers. (Don’t extend the initial term of the lease though because, if the sale does not go through you will end up being liable to pay rent for a longer term).
- This may also be a good time to renegotiate other onerous terms in the lease. So, send to a commercial lawyer to report on what needs changing to make the lease more ‘commercial’ in the current climate.
Issue #4: buyer wants to renegotiate price
We have all come across buyers who have little regard even for a signed contract and use any opportunity to renegotiate the purchase price just before settlement.
The sad thing is that this often occurs where the buyer has or perceives that they have the bargaining power, for example where the sale has to go ahead quickly and they know that the seller will not:
- be able to afford to fight them in court; or
- want to waste any more time putting the business back on the market and trying to find a new buyer.
Tips to avoid the issue: Make sure that the contract stacks up:
- Take a large enough deposit from the buyer to discourage a breach of contract.
- Make sure that all conditions are drafted tightly enough to ensure that the buyer has little ‘wriggle room’ for example, if there is a due diligence clause make sure that it is tight enough to point to exactly want constitutes unsatisfactory due diligence. Do not leave it to the buyer to say that they are simply ‘not satisfied’.
- When you need to rely on a clause in the contract you want to be sure that there is no ambiguity and that the interpretation finds in favour of the seller. The standard REIQ contract is not adequate to protect a seller, it needs well drafted ‘buyer’s’ special conditions.
- Even before the contract is signed, having all the terms documented in a well drafted set of heads of agreement or terms sheet will help avoid this. Both parties will be on the same page and understand what the process of the business sale will be.
It is important to work with experienced business sale professionals when you sell your business to maximise the chances of success. We regularly assist with business sales and would be happy to assist you through the process.
If you require any assistance with your business sale or business purchase or need help with other commercial legal issues, please contact our commercial legal team:
Ph: +61 7 3009 6555