QLD: Commercial Tenancies and the National Mandatory Code of Conduct

Yesterday, the Prime Minister announced that a Mandatory Code of Conduct has been agreed on which will impose good faith leasing principles. The Code applies to commercial tenancies (both retail and non-retail tenancies). 

It applies only to SME tenants (those with turnover under $50M), who are eligible for the JobKeeper program.

This Code will be legislated and regulated in Queensland. It is intended to continue while the JobKeeper program remains operational.

Landlords will not be able to terminate leases for non-payment of rent during the pandemic period. Landlords must not draw on a tenant’s security for the non-payment of rent (e.g. cash bond, bank guarantee or personal guarantee).

Regarding rent (including waivers or deferrals), the aim of the Code is to ‘share’ the financial risk and cashflow impact, between landlords and tenants.

The Code contains a number of ‘Overarching Principles’, ‘Leasing Principles’ and a ‘Binding Mediation’ mechanism. A full copy of the code is available here: https://www.pm.gov.au/sites/default/files/files/national-cabinet-mandatory-code-ofconduct-sme-commercial-leasing-principles.pdf 

The intention is for landlords (and tenants) to agree to tailored, bespoke (customised) and appropriate temporary arrangements for each SME tenant, taking into account their particular circumstances, on a case by case basis. 

This is where solicitors will be able to bring the most value (working collaboratively with other professionals where appropriate – e.g. accountants, managing agents, financial planners, insolvency practitioners, etc).

#negotiatewithempathy

Cheers,
Josh Fox
Foxlaw

Covid-19 and its effect on Commercial Leases - FAQs

On 29 March 2020, Prime Minister Scott Morrison made it clear he wants commercial landlords and tenants to work something out to survive the Covid-19 period.

The starting point is that nobody should assume their lease (or any contract for that matter) automatically ends because of Covid-19. 

In fact, for the reasons discussed in more detail below, most landlords and tenants will remain in a binding lease which will not automatically come to an end due to Covid-19. There may, as with most things in law, be exceptions. Every lease and every situation is different. Before taking action, please get specific advice.

The best approach for most parties will be to seek to agree on a commercial arrangement which is mutually acceptable to both the landlord and the tenant. I encourage everyone to approach these negotiations with a sense of empathy for the other party’s situation. Covid-19 is neither party’s fault and both parties will have their own set of financial pressures at this time. Now is the time for a commercial approach, cool heads and pragmatism (and collegiality between solicitors). 

I have considered some frequently asked questions (from a landlord’s and tenant’s perspective) below. I hope this serves as a useful starting point for understanding the issues involved, but I cannot stress enough the importance of obtaining specific advice. For example, it may be that your particular lease has a specific clause in it which changes the ‘answer’ to a question entirely. 

For commercial and residential tenants, a 6-month moratorium on evictions has been announced, along with a set of commercial tenancy principles (as set out in the Prime Minister’s media statement on 29 March 2020) as follows:

• a short term, temporary moratorium on eviction for non-payment of rent to be applied across commercial tenancies impacted by severe rental distress due to coronavirus;
• tenants and landlords are encouraged to agree on rent relief or temporary amendments to the lease;
• the reduction or waiver of rental payment for a defined period for impacted tenants;
• the ability for tenants to terminate leases and/or seek mediation or conciliation on the grounds of financial distress;
• commercial property owners should ensure that any benefits received in respect of their properties should also benefit their tenants in proportion to the economic impact caused by coronavirus;
• landlords and tenants not significantly affected by coronavirus are expected to honour their lease and rental agreements; and
• cost-sharing or deferral of losses between landlords and tenants, with Commonwealth, state and territory governments, local government and financial institutions to consider mechanisms to provide assistance.

Landlord FAQs:

Q¹: Can the tenant ask for a rent reduction/abatement or a deferment of rent?

A: Yes, the tenant can ask. This is what Scott Morrison has encouraged a discussion on. No, the tenant is not, in most cases, entitled to a rent reduction/abatement or a deferment of rent (unless the Government take further actions to provide for this). Parties may choose to begin negotiations by talking with each other directly, by the tenant dealing with the landlord’s property manager/agent, or via their respective solicitors. Once an agreement is reached, this should be evidenced/documented. Depending on what is agreed, your solicitor will guide you as to how best to document the arrangement.

Q²: Will additional costs I incur due to Covid-19 be recoverable as outgoings? For example, more frequent cleaning of common areas and bathrooms, provision of hand wash, hand sanitiser, etc.

A: This will depend on whether any outgoings are payable by the tenant under the existing lease and the definition of “Outgoings”. Where cleaning costs/consumables are currently recoverable (by the landlord from the tenant), it is likely these costs will be recoverable from the tenant (provided the landlord acts reasonably in the circumstances). In respect of areas maintained by the landlord (e.g. common areas), the landlord may have an obligation to take additional steps in the interest of the safety of those that use the building. In that case, where outgoings are recoverable from tenants, it would be appropriate to pass on any additional or increased costs (in most cases).

Q³: Can I force a tenant to continue trading?

A: No. While many leases do contain a clause requiring the tenant to trade or operate, it is very unlikely a court would grant an injunction (an order compelling action in this case) to force a tenant to trade. You may, however, have a damages claim against the tenant. However, in circumstances where the tenant is closing to comply with the law, and there is an inconsistency between the obligation to trade/operate and the obligation to comply with any ‘official requirements’ (as they are often described in commercial leases), it is likely the obligation to comply with official requirements would prevail.

Q⁴: Can the tenant argue frustration of contract and that the lease is now at an end?

A: No, in most cases. The doctrine of frustration of contract is part of the common law (the body of case law that has developed over many years, outside of specific legislation). Frustration occurs when, through no fault of the parties, an intervening unforeseen event happens which makes performance of the contract either radically different or impossible. It is usually very difficult to establish frustration of a contract. Typically, a temporary closure will not frustrate a lease. The length of the existing lease would likely be a relevant factor to consider. For example, a 3-month closure, in the context of a 10-year lease is unlikely to constitute frustration. However, it may be arguable that a 5-month closure in the context of a 6-month lease may well frustrate that contract.

Q⁵: Can the tenant argue you’ve breached your covenant (promise) to provide quiet enjoyment?

A: No, in most cases. Under most leases the tenant is obligated to comply with ‘official requirements’ (laws/regulations/orders from an authority etc). Even without an ‘official requirements’ clause, if the tenant’s closure is compelled by law, rather than the closure being caused by a voluntary decision to disrupt the tenant’s quiet enjoyment, it is unlikely a tenant could argue any breach of quiet enjoyment. The situation may, however, be different where you voluntarily close the premises or centre before the law requires it. If you are a landlord considering this, please seek legal advice specific to your own circumstances. If the premises is a ‘retail shop’, see the comments below at Q⁶.

Q⁶: What if I have a ‘retail shop’ – will I be liable to compensate my tenant?

A: Queensland legislation (s43(1) of the Retail Shop Leases Act 1994) provides that compensation is payable to a retail shop tenant if the landlord (rather than a virus):

- substantially restricts the tenant’s access to the premises;

- takes action (other than under a lawful requirement) that substantially restricts or alters the flow of potential customers past the premises; or

- causes a significant disruption to trading.

Note that s43 is focused on actions taken by the landlord.

Further, under s43AB, there is also an emergency ‘exception’, which may absolve the landlord from liability for compensation. A landlord is not liable to pay compensation under s43(1) where their action is a reasonable response to an emergency or in compliance with any duty imposed under (or under the authority of) an Act.

Therefore, it is unlikely a tenant would succeed in claiming compensation where the landlord closed a centre due to a legal requirement to do so. Where a landlord closes a centre pre-emptively/voluntarily, the answer is a little more uncertain and landlords will need to exercise care and document their decision well. Landlords may need to balance their obligation to provide access to the premises with other risks/considerations (e.g. negligence, public relations, etc). For example, if there was an outbreak of cases in a particular shopping centre, it might be reasonable/appropriate for the landlord to close the centre, despite the fact the Government had not yet made closure mandatory. Again, in most cases these issues will be better resolved by good communication and negotiation of a solution, rather than through the Courts (where there will likely be limited access and delays during the Covid-19 period).

Q⁷: Are there any special considerations if I hold the property as trustee for a self-managed super fund (SMSF)?

A: Yes, there are, but the ATO has now said, in short, that granting rent relief is okay (and they won’t require strict compliance with the usual SMSF rules for the financial years 2020 and 2021). There was some initial concern regarding the ability of SMSF landlords to grant rent relief (especially to a related party tenant), given that under the ‘sole purpose test’ a SMSF landlord would usually need to be acting to benefit its members’ retirement benefits, not acting to benefit a tenant. Although, one might argue that helping the tenant survive (rather than become insolvent) and to be able to continue to pay rent in the future, is in the interests of the members of the SMSF. Fortunately, the ATO has now put out guidance to make it clear that granting rent relief in connection with Covid-19 will not be the subject of compliance action. Despite this ATO reassurance, if your tenant is a related party, it is recommended that you approach rent relief in a similar way to how you would approach the situation with an arms-length tenant.

Q⁸: Do I owe a duty of care to tenants’ employees?

A: You may owe a duty of care to take reasonable steps to protect the tenants’ employees from harm/loss etc. Typically, an employer (the tenant) will have the primary duty of care to look after the health and safety of their employees. However, especially in areas where you exercise a level of control (e.g. common areas), you may have a duty to take reasonable steps to prevent harm/loss which is reasonably foreseeable.

Tenant FAQs:

Q⁹: If required to close my business by the Government, will I have to comply?

A: Yes, the Governments (at a Federal and State level) have broad powers to deal with events like this (Covid-19).

Q¹⁰: Can I rely on the rent abatement clause in my lease?

A: No, in most cases. Typically, rent abatement (reduction) clauses apply where there is an inability to use or access the premises due to physical damage or destruction. The Covid-19 situation involves no physical damage or destruction to the premises, so it is unlikely these types of clauses will apply.

Q¹¹: What options are there in terms of dealing with rent at this time?

A: When negotiating with a landlord, essentially any workable, mutually agreeable, arrangement is open to you. Here are some of the possibilities (not exhaustive):

(a) Discounted rent (e.g. 30%, 50%, etc) for an agreed period of time (e.g. 3 months).

(b) No rent (rent free) with lease extension – no rent is payable for an agreed period (e.g. 6 months), but the lease term is extended by the period of time the ‘rent free’ applies for.

(c) Deferred rent amortised over the remaining term – this is where you might agree to defer rent (e.g. no rent payable for 3 months), but the total deferred rent is then amortised (divided up into, usually equal, payments) over the remaining term of the lease.

(d) Resort to a security bond (cash) or bank guarantee held – the landlord may (either under the terms of the lease or by mutual agreement) resort to accessing a cash security bond or a bank guarantee. The security bond can be applied to rent owed. In the case of a bank guarantee, while this will allow the landlord access to the money to apply to rent, this will then mean the tenant has a liability to repay the bank, in accordance with the terms of your bank guarantee facility.

You might also consider some hybrid of the above, or some other creative solution. Parties may need to talk to their accountant about any tax or other consequences of these arrangements.

Q¹²: What if my landlord is not agreeable to having a discussion (about rent or other things)?

A: Most landlords will be watching the news and hearing all the same updates and information you are and hopefully it will be unlikely your landlord (or landlord’s property manager/agent) will be unwilling to have a discussion. However, in the event you have initial difficulty, you may be able to highlight the dispute resolution provisions in your lease, which usually provide a mechanism/process to bring about a meeting, either with or without a mediator. In relation to dispute resolution, it is worth noting that a number of mediators now offer services remotely (e.g. using platforms like Skype or Zoom or similar).

Q¹³: Can I make the call myself to stop trading, due to being worried about Covid-19?

A: Strictly speaking, no. Until the Government makes it mandatory for you to cease trading, you are obliged to comply with any requirements in your lease to trade/operate. However, see Q³ above, as the issue of forcing a tenant to trade. The decision to stop trading will not absolve you from the obligation to continue to pay rent.

Q¹⁴: Can the landlord decide to close my shop or the centre, due to being worried about Covid-19 (before any Government requirement to close)?

A: Strictly speaking, no. However, it is possible some landlords may move to do this at some stage. This may be able to be achieved by discussion, negotiation and mutual agreement with affected tenants. Alternatively, a landlord may choose to take action in light of certain circumstances (e.g. a Covid-19 outbreak in their centre). In that case, it is possible a tenant may have rights, to damages or otherwise. This would be a fairly tricky/complex situation, and specific legal advice should be obtained if you are a tenant in this position.

Q¹⁵: Can I argue frustration of contract and that the lease is now at an end?

A: No, in most cases. See comments above at Q⁴.<>

Q¹⁶: Is this an “act of God”/”force majeure” event which allows me to walk away from the lease?

A: No, in most cases. Unlike with frustration, there is no common law doctrine of ‘force majeure’. If force majeure rights exist, it will be because there is a force majeure clause in the lease. However, it is quite unusual for a commercial lease to include a force majeure clause. If your lease does have a force majeure clause, it will be important to look at what constitutes a force majeure event (e.g. it might cover a fire, flood, war, etc, but may not cover a virus/pandemic situation), what happens (e.g. suspension of obligations) and whether a termination right arises if the event continues for a specified period. You may need to seek advice to ensure any notice you are required to give to invoke the operation of the force majeure clause is effective.

Q¹⁷: Can I argue the landlord has breached its covenant (promise) to provide quiet enjoyment?

A: No, in most cases. Particularly where the landlord has closed a centre or premises as required by law, the landlord will not have breached its covenant to provide quiet enjoyment. In most cases, the tenant will need to close to comply with the law, which the tenant is obligated to do under most leases, often due to an obligation to comply with ‘official requirements’ or similar. If the landlord has closed the centre or premises pre-emptively/voluntarily, see the comments at Q⁵ above.

Q¹⁹: Will my ‘business interruption’ or other insurance cover this?

A: Your insurance could, potentially, cover some or all losses incurred due to Covid-19. This this may be because you have specific coverage for losses related to a viral pandemic or because you have more general “business interruption” insurance. You would need to check your policy for any exclusions (e.g. disease outbreak, epidemics, pandemics, etc). I expect many policies will exclude cover for diseases such as Covid-19. Cover is often linked to physical damage to the business premises or business property. Your policy should be reviewed carefully. You may wish to initially seek guidance/advice from your broker/insurer. If not satisfied with their response, I recommend you seek further advice from a solicitor experienced in insurance law.

Stay safe and be kind out there!

Cheers,

Josh Fox
Foxlaw

QLD: Is your business' lease registered?

A lease which is in a registrable form (a Titles Office Form 7 in Queensland), can be registered on the title for the property. Once registered, the lease is shown as an interest on title, noting the name of the tenant and the commencement and expiry dates, along with the next option term (if there is one). Registration has potential benefits for both the Tenant and Landlord.

Tenant:

If the landlord sells/transfers the property, the new owner/landlord may not be aware of a tenant’s lease. Any lease which is longer than 3 years (including the option periods) is not protected unless it is registered. If registered, the lease interest is said to be “indefeasible” (think… “undefeatable”). For short leases (3 years or less, including the option periods), there is automatic protection (under legislation).

A tenant’s interest can be defeated if it is not protected (either by automatic ‘short lease’ protection or by registration on title), for example, by a new owner (who doesn’t have notice of the tenant’s interest) or by a mortgagee bank who repossesses the property.

If a tenant’s interest is defeated, the tenant may look around for someone to blame, like the original landlord who made contractual promises (which is one reason why registration is potentially beneficial for the landlord too).

Landlord:

Firstly, having all leases registered on title can be attractive to a potential buyer. Property investors (and their financiers) tend to like seeing everything is in order and having a complete record of all leases in existence on title is nice and neat. 

Secondly, if a landlord sells/transfers the property, with an unprotected lease, and the new owner/landlord refuses to honour the tenant's lease and/or option period(s), the original landlord risks being in breach of contract. The breach is that the original landlord promised to provide a lease and/or an option period to a tenant and failed to deliver on that promise.

Ideally, when a landlord sells/transfers, all of their obligations to a tenant are transferred over to the new landlord, but this can depend on the wording of contracts and notices given, and is a messy and uncertain way to deal with the issue. 

Instead, registration of a lease on title serves as a notice to everyone (including, for example, a buyer of the property) that there is a lease interest in existence. The buyer cannot then claim not to have had notice of it. This protects the original landlord from the risk of contractual breach by ensuring the new landlord is aware of, and must honour, the tenant’s lease.

Registration is usually at the cost of the tenant (most lease precedents provide this).

Something to think about! 

As always, you should always seek advice specific to your particular lease/property and your individual circumstances.

Is your Business Name registered?

As most business owners are aware, it is common practice to trade under a ‘trading name’. Not to be confused with a legal name, a trading name relates to your business trading activities. This name can be anything (within reason) and commonly reflects the services or products which your business provides. However, some business owners may be unaware of their obligation to register their business name and the consequences of not doing so (carrying on business under a name not registered can mean a penalty of 30 penalty units which equates to $6,300 currently).

In May 2012, ASIC took control of the registration of business names, incorporating the previous State registers. Having a national register (maintained by ASIC) makes searching for business name availability much easier (and a lot of administrative sense)!

When starting a new business, a name is a very important feature. It typically tells the public who you are and what you do, helping to attract business. If left unregistered, you risk losing out on your desired business name to someone else, as well as committing an offence under the Business Names Registration Act, which can lead to hefty monetary penalties. Registration is a fairly low cost (amidst all the other costs of setting up and running a business).

More information on business name registration can be found at the link below:

https://asic.gov.au/for-business/registering-a-business-name/

Some questions you may be asking yourself:

Do I need to register my Legal Name as a trading name?
No, if trading under your legal name, there is no need for that name to be registered.

Does registering my business name give me exclusive rights to that name?
No, if you want exclusive rights to that name, it is best to register a Trade Mark.

Can I have more than one business name registered to my ABN?
Yes, you can have multiple business names registered to one ABN. 

Can I alter the business name after it is registered?
No, unfortunately once a name is registered it cannot be altered. To get the name which you are seeking, you must apply for a new business name. 

What are the costs of registering a business name?
The cost of registering a business name depends on the timeframe you register for. Currently, a 1-year registration costs $36.00 and a 3-year registration costs $84.00.

Where can I find out about the availability of a business name?
You can find out if a name is registered by searching here:
https://asic.gov.au/for-business/registering-a-business-name/before-you-register-a-business-name/business-name-availability/

It is recommended you also search to see if there is a registered Trade Mark for your desired business name (to avoid infringing a registered Trade Mark). You can search for Trade Marks at IP Australia: https://www.ipaustralia.gov.au/ 

While you're in search mode, it's also a good idea to see if the web domain name is also available!

Special thanks to Myles Heath (law student) for his assistance with this article!

QLD Residential Contracts and the Cooling-Off Period!

Having just celebrated Easter (hope you all had some quality time off), we’re in amongst a bunch of public holidays.

So, it’s probably a good time for a quick ‘refresher’ on how ‘Cooling-Off’ works!

You may (or may not) be aware that there is typically a ‘Cooling-Off Period’ in Queensland under most contracts for residential properties (when buying).

The cooling-off period is not just 5 ordinary/calendar days, but 5 ‘business days’.

A ‘business day’ is a day which is not a Saturday, a Sunday or a Public Holiday (in the place where any relevant act is to be or may be done).

The way we work out the cooling-off ‘period’ is a bit tricky! It usually starts on the business day a copy of the contract is received by the buyer (at any time). It then ends at 5pm on the fifth business day.

It’s best to talk to your solicitor before attempting to terminate under the cooling-off provisions. Usually your solicitor will send the relevant notice of termination for you (if that’s what you want, after weighing up the pros and cons).

Easter example:

The buyer receives the fully signed Contract on Thursday, 18 April 2019 (this counts as business day 1 of 5, not day 0). The cooling-off period ends at 5pm on Monday, 29 April 2019 (business day 5). In addition to the Saturdays and Sundays not counting towards the 5 business days, Good Friday, Easter Monday and Anzac Day also do not count!

‘Cooling-Off’ isn’t as great as it may initially sound. Beware of the termination penalty of 0.25% of the Purchase Price! Any easy way to think of this is $250 per $100,000 of the Purchase Price of the property. For example, for a $500,000 property, the termination penalty would be 5 x $250 or $1,250. This can only be deducted from a Deposit held, so if there is no Deposit held, no termination penalty to be collected by the seller.

The cooling-off period can be waived (given up entirely) or shortened by the buyer, by written notice to the seller.

As with most areas of law, there are exceptions. Below are some examples:

• A cooling-off period does not apply to a contract formed on a sale by auction (or entered into with a registered bidder no later than 5pm on the second clear business day after a property is passed in). 
  
• Some other examples where a cooling-off period does not apply:
• A contract formed because of the exercise of an earlier granted option;
• Where the buyer is a publicly listed corporation (or subsidiary of);
• Where the buyer is the State or a statutory body;
• Where the buyer is buying at least 3 lots at the same time.

Law in QLD - What happens if you die without a Will (and why you shouldn’t)?

If you die without a Will, you are said to have died ‘intestate’. If you die intestate, you don’t have a say over what happens with your estate assets when you pass away.

What are the rules of intestacy?
Certain default rules of succession apply to the estates of those who die intestate (without a Will). As represented below, estate assets will go to the spouse and ‘issue’ (biological children and/or grandchildren depending on who is living), and then in the absence of a spouse or issue, then onward to the parents of the deceased, and so on through to the outer rings. Ultimately, if you have no living relatives when you pass away, your estate assets may pass to the Crown (the Government).

Why you shouldn’t die without a Will:

No executor
Without a Will, you won’t have a validly appointed executor who can take care of the process/paperwork of dealing with your estate. Instead, a person or persons will need to apply to the Court to be appointed as your administrator. There is a default hierarchy as to who the administrator would usually be (a person lower on the list would need to give reasons why they should act instead of someone higher on the list).

No say on how your estate assets are shared/distributed
When you don’t have a Will, you don’t get a choice who receives your estate assets. So, if you’d rather distribute your assets in a way that doesn’t follow the default intestacy rules, such as choosing a brother or sister to inherit your belongings instead of a parent, you should make a Will to provide for this.

Increased stress for your loved ones
When someone passes away it is already an emotional time, and not having a Will can amplify this stress. If you have a Will, the process can run more smoothly, and your loved ones will have one less thing to worry about.

Leaving your children without an appointed guardian
If you have children (or are potentially planning to have them), you can appoint a guardian or guardians in your Will. Naturally, there are other (sometimes very costly) court processes which can assist in resolving who is to be the guardian of your children if you don’t have a Will (or fail to appoint a guardian in your Will). However, exercising a conscious choice in respect of a suitable guardian seems the preferable (and certainly more thoughtful) approach.

More costly administration costs (generally)
Having a valid Will can reduce the financial cost of administration of your estate as, in most cases, there is already an executor appointed (avoiding the need to apply to the Court to appoint an administrator) and a distribution detailed in the wording of the Will. Unless the Will is challenged, this distribution (who gets what) is generally followed.

Foxlaw can assist with Wills and estate planning (the other things you need to take care of besides the Will document itself). We can also prepare Enduring Powers of Attorney. Organising your estate planning ahead of time ensures you don’t add unnecessary pressure on your loved ones at an already difficult time. Hope for the best, but plan for the worst!

Special thanks to Jemma McKenzie (law student) for her assistance with this article!

Preparing your Business for Sale in QLD

Selling your business is an important decision.  It is important you have all the information you need when you decide to sell.  Below are some things you might consider as part of your pre-sale preparation:

1.   Method of Sale

There are two main methods of sale. First is the sale of the business assets themselves (most common), which often (but not always) uses a standard form REIQ Business Sale Contract.  Second is the sale of the seller’s interest in its entity, for example, the sale of the seller’s shares in its company or the sale of the seller’s units in a unit trust.

2.   Due Diligence (Seller – looking at the Buyer)

As the seller, you may assess the likelihood of a prospective buyer obtaining finance to purchase your business.  It might also be wise to consider whether you need to seek out a buyer with a certain level of financial standing and with experience in running a similar business, as your landlord may have certain requirements that the buyer (as a new tenant) must meet. 

3.   Confidentiality Agreement/NDA (Non-Disclosure Agreement)

A prospective buyer may request sensitive/confidential information about your business, so you may wish to review this information with your solicitor and/or accountant before giving a buyer access.  It is often a good idea to have the prospective buyer sign an agreement to better protect your confidential information.

4.   Structure of the Deal

Is the deal plus stock (with a stocktake) or inclusive of any stock (a.k.a. ‘walk in walk out’)?  Have you considered the GST status and is it capable of being a sale of “Going Concern”?  You should seek professional legal and accounting advice, but to oversimplify, to be a “Going Concern” both parties must be GST registered (or required to be), and you as the seller must supply all of the things necessary for the continued operation of the enterprise/business.

5.   Your Lease

Consider whether there are any outstanding ‘make good’ or ‘refurbishment’ provisions.  Is the ‘Term’ of your Lease current (or are you now, for example, a periodic month-to-month tenant)?  Is there an unexercised option (that perhaps should be exercised)?  Should the lease be registered on the title?  Having a pre-sale lease ‘check-up’ is a great idea, as lease issues can really affect the sale process and ultimate outcome.

6.   Plant and Equipment

What condition is your plant and equipment in?  You may need special conditions in the Contract to account for this.  Is the plant and equipment ‘unencumbered’ (fully owned by you)?  Consider whether any loan/finance needs to be paid out or whether the buyer is willing (and able) to assume liability and step into your shoes.

7.   Intellectual Property

Consider the goodwill assets of your business and intellectual property (for example, registered business names, domain names, phone numbers, trade marks, patents, etc).  A useful first step is to ensure that any registrations have not lapsed/expired.

8.   Due Diligence (Buyer – looking at the Seller)

Consider what the Buyer will want to look at. They may wish to see financial records (for example, a Profit & Loss Statement and Balance Sheet [typically the past 24-36 months]), budgets and business plans, details of your accounting and other systems (for example, Xero, MYOB, CRM software, automation software, etc).  Other information which may be useful might include utility accounts, supplier/customer details and insurance particulars.  If you have been trading relying on any verbal/‘handshake’ agreements, it might be a good idea to reduce those to writing and consider whether the buyer will be able to continue to benefit from those arrangements (or not).

9.   Employee Entitlements

What is currently owing to your employees?  Up-to-date information will need to be available so entitlements may be adjusted at settlement (if adjustment is agreed upon).  What documentation is currently in place with employees?  This includes employment contracts, policies, etc.

10.   Restraint of Trade

A buyer paying for ‘goodwill’ will often want the seller restrained from opening up a new business in competition to the buyer, for a period of time after the sale.  An example of this might be a 25-kilometre radius (area restraint) for three years (time restraint).  As a seller, consider what you are willing to offer.  If you offer a more generous restraint, will it increase the ‘goodwill’ the buyer will pay for and therefore the overall price of your business?  Do you need any ‘carve outs’ for activities you intend to continue after the sale completes which should not breach the restraint?

Got more questions on selling (or buying) a business?  Feel free to contact us on (07) 49 278 374 or email us at teamfox@foxlaw.com.au!