Transfer Documents

There's a small suite of documents and a clutch of processes that go with them, designed to transfer to the buyer the tangible and registrable assets that make up the business. In most cases it is the buyer's responsibility to create the documents that create these transfers, and you simply need to sign and return them.

You need to be aware however of the process.

Lease
In  some jurisdictions the Lease Transfer is made up of two documents; the Assignment of Lease itself, and a Deed of Covenant.

The Lease Assignment document (it may be called the Transfer or a Deed of Assignment depending upon the type of lease you hold), will be prepared by the buyer and sent to you to sign and return. That document effectively transfers any rights that you have in the Lease. You should not return it unless you receive a written undertaking from the solicitor to the buyer, that the document is not to be used pending settlement. If you do not receive this Undertaking, do not return the document. Do not accept this Undertaking from the buyer itself.An Undertaking from the solicitor is an enforceable undertaking able to be pursued both through the Courts and through the Solicitor's disciplinary body. An Undertaking from the buyer itself is worthless.

The Deed of Covenant is a document designed to create a direct link between the buyer and your landlord. It enables the landlord to sue and creates what is called "Privity of Contract". This document is prepared by the landlord's solicitor at your expense and is often done very slowly, and in fact may not be ready by settlement.

You should check as soon as possible on the cost of this document, as prices vary wildly. You do not have an opportunity to shop for prices, as the landlord will choose its own solicitor for it.

Your responsibility after the Contract is signed, (obligations vary slightly from Contract to Contract so check yours), is usually simply to take all reasonable steps to obtain the consent of the landlord to the Assignment. Chasing the documentation is the buyers responsibility.

Business Name, Website, Telephone and other services
Again it is up to the buyer to produce documentation for you to sign, but if you want to avoid ongoing responsibility for electricity, telephone, Internet and other services, it is important to take a direct hand in seeing that these services are cut off from the day after the settlement. This will take them out of your name. Remember, many of these services have security deposits, which should be adjusted off your final bill or returned to you.

Local Authority and State Government Licences
Most authorities maintain that these licenses cannot be "transferred" or "assigned", and have to be applied for freshly by the buyer.

Regardless of the wording used, the buyer will be responsible for obtaining licenses in its name for the continuation of the business.

One potential catch for a seller is where the Contract makes the purchase of the business subject to obtaining all of these licenses, and gives the buyer the opportunity to back out if those licenses are not obtained. It is implicit in that situation that the buyer will have to take all reasonable steps to secure that outcome.

Regardless, it will be important for you to be on top of the status regarding each of those licences, and in direct contact with the licencing authority to ensure that this is happening.

Requisitions on Licenses
Some of these licences have a requisitions regime.

Particularly in a food preparation business, the Local Authority License process often creates a situation where the local authority will indicate that the license can be assigned but only once several requisitions have been completed.

The Contract will usually specify but this is your responsibility, but sometimes will place monetary cap on the value of requisitions which with you have to comply after which it is the buyer's responsibility to pay. If you believe that requisitions are possibly or likely you should attempt to limit the monetary value of your contribution.

Bennett Carroll Solicitors have offices located in Brisbane and the Sunshine Coast

Freecall: 1300 334 566
Fax: (07) 3343 8664

Email: info@bcglaw.com.au

Website: www.bcglaw.com.au  

Personal Property Securities Register (PPSR)

This is a new Commonwealth law.  The commencement date is 30 January 2012

Þ           From this date Queensland's REVS (motor vehicle), Bills of Sale Register and Register of Cooperative Charges will be rolled into Commonwealth Register.  It will provide a one stop shop for all registered encumbrances over assets other than company charges and land.

Þ           Searching the Register (PPSR) requires either an account or can be accessed as a guest (pay as you go if guest user).

Þ           Search criteria will include grantor details, serial number of property (if applicable), and vehicles will be searchable by serial number

Þ           The law provides for penalties against misuse of information contained in PPSR

As a Buyer: -

Þ           This applies to personal property not including land or building or a fixture

Þ           Personal property includes cars and other vehicles, art, aircraft, intellectual property, contract rights, crops, livestock, machinery,

Þ           Search facility allows you to confirm any security interest in your proposed purchase to ensure no repossession by lender after purchase

As a Grantor (person granting the security over their property): -

Þ           The Grantor uses personal property to secure lending, business assets as security for lending (example given is that of fixed and floating charge), title retentions (leasehold rather than freehold), or leases personal property for extended periods of time (ie cars, equipment)

Þ           Grantor's details can be included in PPSR where no description can be provided for the personal property – organisations provide an identifier; individuals provide name and date of birth

Þ           If information listed in PPSR is incorrect, Grantor needs to contact Secured Party (Lender) to request amendment

Þ           Upon disposal of personal property, Grantor needs to contact Secured Party to obtain relevant discharge/release

As a Secured Party: -

Þ           A Secured Party has a secured interest in personal property of the Grantor such as fixed and floating charges, long term and finance leases, chattel mortgages (interest free purchases like TVs), title retentions, commercial consignment and factoring

Þ           The law has default and specific rules as to registering personal property with priority which take into consideration:

ü             control of personal property

ü             competition existing between security interest and statutory interest.

Bennett Carroll Solicitors have offices located in Brisbane and the Sunshine Coast

Freecall: 1300 334 566
Fax: (07) 3343 8664

Email: info@bcglaw.com.au

Website: www.bcglaw.com.au 

CONTRACT NEGOTIATION – TACTICS & STRATEGY

Your approach to the contract negotiation process will depend upon a range of variables, some of which will be beyond your control.

The most obvious example of this is the attitude of the buyer who may employ a range of different approaches, and will have priorities and processes which will probably only be partially known to you.

Obviously, the buyer’s attitude approach and priorities, will have a major effect on how the negotiation proceeds, how far it gets, which contract variables are altered or conceded, and ultimately whether you get a deal at all.

There are several important things to remember when stepping into this process:-

1.             BEGIN WITH THE END IN MIND

As the seller, by setting the initial parameters for negotiation, you have some control over where the process begins.  Your broker (if you have chosen the broker well), should have been conditioning the buyer, and attempting to set expectations, throughout the purchase introduction process.  The broker (and you if there have been face to face negotiations), should have given a fairly clear indication of the variables in the contract which are important and/or non negotiable.  Having said that, most things are negotiable to some degree. Your initial approach and parameters, should be set up to allow some room for negotiation by the buyer, and give a reasonable expectation to the buyer of what you will and won’t accept, whilst at the same time being somewhere near reasonable.

You and your broker should have discussed this, and have a strategy in place.

2.             DECIDE WHAT’S IMPORTANT

It is exceedingly rare for the buyer of anything, let alone a business, to step up and immediately agree to every variable of the deal.  It is important for you to decide which variables are important and which ones are not.

There are essentially three categories and variables for you to consider:-

a.             Central and not negotiable

b.             Central and negotiable

c.             Throwaways

a.         Central and not negotiable

Examples of this category might be an absolute requirement for a guarantee from a purchase of company, or the requirement for the buyer to obtain a new Lease rather than an assignment of the existing Lease. The purchase of a business with the assignment of an existing Lease renders you liable for rent to the landlord, for the balance of the rental term.   If this is a significant amount and you have concerns about this ongoing liability, a requirement for a new Lease will rid you of this liability.  Likewise, where you have a purchaser that is a company, and you are uncertain as to its asset base or solvency, a guarantee from the directors (and, these days, the spouse(s) of the director(s)), is really quite essential.

b.         Central but negotiable

The purchase price is the most obvious example of this situation.  The amount you receive as the sum of your business, it’s critical for your future, but you can certainly expect the buyer to want to reduce the price. It is quite common for contracts to be received which have several prices crossed out, one after the other, before a final figure was reached.

c.         Throwaways

A good example of this is the restraint clause.

The buyer might well be extremely keen to see you out of the industry for a significant period of time.  If you are leaving the industry entirely, and have no plans to return, this is something you might throw away, in exchange for, for example, keeping the purchase price higher.  All this will need to be negotiated during the contract completion phase.

3.             THE ROLE OF THE BROKER

The broker will earn significant permission on the sale of your business. The brokers role is to find and introduce a buyer who is ready willing and able to complete.

The broker should also be assisting you with:-

a.             Conditioning the buyer to the important parameters of the deal, upon which you will not compromise;

b.             Relaying important information to you about the buyer’s priorities and attitudes;

c.             Manoeuvring the buyer towards a contract which best suits you.

Many people, buyers particularly, make the mistake of assuming or believing that the broker is an unbiased mediator between the parties.  This is untrue.

The broker quite literally and legitimately, is your agent, and, if he or she wants a commission, must act in you interests to get a contract together.

The other side of this coin however, is that the broker cannot act in a false or misleading way.  The broker is your agent and you will be responsible for any improper conduct undertaken on your behalf.  It is not a sustainable approach from either you or the agent, to attempt to hoodwink the buyer into buying a business, as, at some stage either before or after settlement, the true facts will come to light and you will be held accountable for the acts of your agent.

Having said all of this, an enthusiastic and skilled broker can create appropriate deals where each party “wins”, where, in many other circumstances, a deal will not materialise.

The broker is also a worthwhile circuit breaker between you and the buyer.  It is very often extremely worthwhile to be able to deliver information through a third party, and avoid directly having to answer questions on the spot.  Having the broker relay information, allows the possibility of time for thinking, and ensures the provision of appropriate information.

The broker is also (or should be), a skilled negotiator, focused solely on the sale deal.  Remember, in these circumstances, you will still have the business to run, and this must remain a focus.

4.             NEGOTIATION STYLES

The character, personality and approach of the buyer is a major variable in the contract negotiation process.

There is a large number of types of approach and list below is by no means exhaustive.

Some of the styles of negotiation which are often seen are as follows:-

1)     Direct clear and simple

2)     “Soviet style”

3)     “Chinese Style”

4)     Pushy

5)     Round and round

1)         Simple Clear and Direct

This is the buyer who displays a “what you see is what you get” approach.  The buyer presents a contract with variables that are somewhere within the bounds of what you consider to be a deal, and is willing to respond to a counter offer that you might make.  Responses to your proposals are returned in a timely way and the negotiation proceeds at a reasonable pace.  These are the easiest buyers to deal with.

2)         Soviet Style

Soviet style negotiation (named for the cold war negotiating style brought to prominence in 60’s and 70’s), opens with assumingly impossibly low offer and then proceeds at snails pace with tiny concessions away form that original position.

An example of this approach would be that if you have indicated a purchase price of, say, 20 with an expectation that you might settle it around 16 or 17, the Soviet style negotiator’s first offer will be 4, and might then proceed very slowly to 5 or 6.

In the face of an extremely low offer, particularly initially, the best options are:-

a)     withdraw from the negotiations and brand the offer ridiculous;

b)     Refuse to make a counter offer until the serious proposal is put forward

c)      Feign insult and go silent.

3)         Chinese Style

This style of negotiation, much applied in South East Asia, involves running a negotiation over long time frames.  Each issue dealt with one by one, and, similar to Soviet Style, concessions are small and well spaced apart.  This style of negotiator is looking for somebody who is impatient or desperate, and will attempt to make a “big concession” to bring the matter to a close.  Patience is the key with this style of negotiation and you must walk the line between keeping the matter going at a reasonable speed, and, at the other extreme, appearing needy or anxious.

The best response to this style of approach is to attempt to meet the size of the concessions being made, with the size of your own concessions, and try to be patient.  Making large concessions to attempt to prompt similar large concessions from the buyer, will not work with this type of buyer.  This may be frustrating but trying to force the pace will be interpreted as desperation, and you may well end up with deal parameters well below your expectations.

4)         Silent approach –

Some buyers will make an offer and then go silent

Bennett Carroll Solicitors have offices located in Brisbane and the Sunshine Coast

Freecall: 1300 334 566
Fax: (07) 3343 8664

Email: info@bcglaw.com.au

Website: www.bcglaw.com.au