The majority of business transactions in Queensland are based on the REIQ Business Sale Contract. It is a standard form contract published by the Real Estate Institute of Queensland and has been used in various forms for many years. It is similar in many ways to the standard form contract used when buying and selling houses in Queensland.
Although not used in larger business transactions or for share sales, it is used as a base contract for the majority of straightforward asset business sales.
Earlier this year the fourth edition REIQ Business Sale Contract was released, introducing a number of changes. Whilst many of these changes are minor and have limited impact on the parties to a transaction, others are notable.
It’s important for anyone buying or selling a business, and their advisors, to fully understand the contract of sale and its commercial implications. We have broken down the significant changes to the standard REIQ Business Sale Contract below, to help you understand the impacts these changes may have on your transactions.
|Item J(I)||The Seller must now provide information as to social and electronic media accounts belonging to the business that will be transferred.|
Clause 6.1(q) requires that all usernames and passwords relating to those accounts be provided prior to settlement.
For a Seller, it highlights the need to make sure that all social media accounts are actually in the name of the Seller (as opposed to personal names of directors or shareholders).
|Clause 4.1(c) and (e)||This amendment places an obligation on the Buyer to remove all stock that is in excess of the nominated stock-value prior to Settlement.|
If this stock is not removed, the ownership of those items will transfer to the Buyer without cost. Previously, any excess stock would remain the property of the Seller so this is a significant change.
|Clause 18||There are a number of obligations in relation to the transfer of employees that have been amended/included. These include:|
– The Buyer must notify at least five days prior to Completion those employees it will offer employment to;
– The offer to employ must be provided at least two business days before Completion;
– The Seller is responsible for those employees who do not receive an offer of employment or who do not accept the Buyer’s offer within one business day prior to Completion;
– Payments that a Seller is entitled to under this provision are to be within 12 months of Completion; and
– The details of employee entitlements must be provided at least two business days prior to Completion.
|Clause 24.5||The Buyer indemnifies the Seller against any claim arising under the terms of the Lease until the date the Lessor provides consent.|
This is relevant in situations where parties have completed the Business Sale Transaction prior to receiving Landlord’s consent.
|Clause 25.3||The Buyer may terminate the Agreement if any disclosure required under the Retail Shop Leases Act has not been validly give to the Buyer or waived by the Buyer prior to Completion.|
It is important to note that this provision captures Landlord Disclosure Statements as well as the Assignor Disclosure Statement that is required under the Act. This highlights the importance of making sure that all disclosure obligations (by all parties) under the Retail Shop Leases Act are satisfied.
|Clause 32||The Buyer must satisfy itself as to the type of business and the permitted use under the relevant town planning scheme. This highlights the importance of Buyers making proper enquiries about whether the business can operate from its location under the relevant town planning scheme.|
|Clause 37||The time limits to verify the accounts and books of the business have been extended to 15 business days.|
When are REIQ Contracts appropriate to use?
As business sales and purchases are so varied, the appropriateness of using a standard REIQ Contract for the transaction must be carefully considered. As a general rule, where the parties are simply looking to transfer assets and document that agreement, or sell a typical retail business, the REIQ Contract may prove adequate.
Where the parties have more complex arrangements, for example earn-out provisions, significant adjustments for stocks, restraint issues or leased equipment, we recommend that a tailored Business Sale Agreement be prepared. This will allow for the drafting of detailed terms and provide a clean slate for the parties to negotiate the terms of sale.
If you are considering purchasing or selling your business, contact our Mergers & Acquisitions team to discuss the right way forward for your transaction.