The most recent Government amendments to the bright-line test now makes the bright-line rules applicable to many more individuals. In this article, we will touch on the rules you need to be aware of when purchasing residential property and whether the bright-line test will apply to you.

What is the “bright-line” test?

The bright-line test is a rule in the Income Tax Act 2007 aimed at taxing financial gains made on residential investment properties that are sold within the bright-line period.

On 23 March 2021, the bright-line period was extended from five years to 10 years. This means that many residential properties, if disposed of within 10 years of acquisition, will be subject to income tax on any profit made.

Any property acquired before 27 March 2021 will still fall under the previous rules, with tax potentially being imposed on properties disposed of within 5 years of acquisition.

Will my Property be Subject to the Bright-Line Rules?

It is important to be aware of whether your property will be subject to income tax under the bright-line rules, as well as consider the implications so that there are no surprises when you come to sell.

We list the following which are common exemptions/exclusions to the bright-line rules:

  • When a property is a main home;
  • When property is inherited; or
  • If you are an executor or administrator of a deceased estate.
Old Rules – Main Home

Under the old rules properties will not be subject to the bright-line rules if they have been your main home for more than 50% of the time you have owned the property within the relevant bright-line period.

Inland Revenue has clarified that a main home is where you have lived most of the time. Therefore, you must actually had to have lived at the property for this exemption to apply.

For residential properties that were acquired between 29 March 2018 and 27 March 2021, a bright-line period of 5-years applies.

New Rules – Main Home

Properties acquired after 27 March 2021 will be subject to the extended bright-line period of 10 years, unless the main home exemption applies. However, the rules for the main home exemption have changed. Where the property is not used as your main for one or more periods of 366 days or more, while you own it, you will be required to pay tax on a proportion of the increase in the value of the property that matches the proportion of time that you owned the property and (for 366 or more consecutive days) were not living in the home as your main home.

Do the same Rules Apply to Newly Built Properties?

Newly built properties are still subject to the bright-line rules, however Government has excluded new builds from the most recent law changes. Therefore, new builds continue to be subject to the 5-year bright-line rules as discussed above. Government has provided some clarity regarding what constitutes a ‘new build’ by confirming that property which clearly increases residential housing will qualify as a new build.

Who can I Contact for Assistance with my Property Matters?

Our team at Parry Field have designed a helpful flow chart to assist you in determining whether your property will be subject to the bright-line rules. For further clarification, we suggest that you engage a tax specialist or one of the property lawyers at Parry Field Lawyers who would be more than happy to provide personalised advice.

For more information you can contact Luke Hayward lukehayward@parryfield.com or Maria Hayes mariahayes@parryfield.com at Parry Field Lawyers.

The End of Life Choice Act 2019 is now in force. This means that a person with a terminal illness who meets the eligibility criteria can ask for medical assistance to end his or her life.

In this article we talk about the key provisions and also consider what that might mean for certain situations such as for landlords and managed accommodation.

Who is an eligible person?

An eligible person means a person who:

  • Is aged 18 years or over; and
  • Is a New Zealand citizen or permanent resident; and
  • Suffers from a terminal illness that is likely to end the person’s life within 6 months; and
  • Is in an advanced state of irreversible decline physically; and
  • Experiences unbearable suffering that cannot be relieved in a manner that the person considers tolerable; and
  • Is competent to make an informed decision.

The Act states that a mental disorder or illness, disability, or advanced age alone does not make a person eligible for assisted dying.

Where might a person choose to end their life?

An eligible person can choose where they wish to be when the medication is administered to end his or her life. It is expected that assisted dying services will generally be provided in a patient’s home or a community setting such as a hospice or rest-home, as opposed to a hospital.

While section 8 permits health practitioners to conscientiously object to providing assisted dying, the Act is silent as to whether any other organisations or individuals outside the healthcare sector can object to and prohibit assisted dying.

Managed accommodation facilities

The Ministry of Health has stated that managed accommodation (such as aged care facilities) can conscientiously object to assisted dying and prohibit it from taking place on the premises.[1] However, managed accommodation facilities that object to assisted dying must still adopt policies that allow for appropriate arrangements to be made elsewhere.

A landlord’s obligations

A landlord who objects to euthanasia may question whether he or she has a right to prohibit a tenant who is eligible under the End of Life Choice Act, from exercising the option of receiving assisted dying, in the rental property.

It is unlikely that a landlord can interfere with a tenant’s choice to receive assisted dying under the Act.

This is because under the Residential Tenancies Act 1986 (RTA), discrimination is declared to be unlawful when granting, varying, terminating or renewing a tenancy agreement. A landlord is also prohibited from stating an intention (by advertisement or otherwise), when granting a tenancy agreement, or when advertising to prospective tenants, to discriminate against any person.

It is also unlawful under the RTA to, on the basis of a prohibited ground of discrimination, treat any person who is seeking accommodation differently to others in the same circumstances, deny any person accommodation, or impose a condition which limits the class of persons who may be tenants.

Could there be discrimination under the Human Rights Act?

The Human Rights Act 1993 outlines the unlawful grounds of discrimination. Ethical belief is one of these grounds.

While there is no authority on this, ethical belief may encompass a person’s conviction to end his or her life by euthanasia. This means that the following may be discriminatory on the grounds of ethical belief:

  • A prohibition on assisted dying in the property as a condition of a tenancy agreement;
  • A verbal statement to prospective or existing tenants to this effect;
  • Denial of a rental property to a person who has expressed support for assisted dying;
  • Termination of a tenant on the grounds that he or she has expressed a desire to receive assisted dying.

Even if the termination of a tenancy on the above ground is not considered discriminatory, it will likely still be unlawful, as there are limited circumstances in which a tenancy can be terminated. It is unlawful for a landlord to act to terminate a tenancy without a valid ground.

Finally, there is also a practical point – there is potential for adverse publicity if a tenant wanted to take these steps and a landlord refused.

As a landlord, housing organisation or another organisation altogether, it is critical to consider your obligations under the End of Life Choice Act.

If you need further clarity you can contact Grace Watson gracewatson@parryfield.com who would be more than happy to talk with you about your particular situation.

[1] Ministry of Heath “End of Life Choice Act – Funding and Delivery Model for Assisted Dying Services” (July 2021) <www.health.govt.nz>.

Buying a house is a huge step in your life but it can be a daunting process. This article discusses key issues that you will need to think about. We recommend engaging a lawyer early on in the process to ensure that everything runs smoothly.

Where do I start?

The first step of buying a home is saving for a deposit and planning your budget. Contact your bank or a mortgage broker to see how much you are able to borrow and whether you can get pre-approval for a loan. Throughout this process it is good to keep in mind how you might like to structure you loan and to investigate different interest rates. Make sure to check your eligibility for withdrawing KiwiSaver funds or obtaining a first home grant by contacting your KiwiSaver provider and Kāinga Ora. You can also get pre-approval for these but you won’t be able to apply for the funds until you have a fully signed agreement. Your lawyer will need to help you with the final application and the funds will eventually be deposited in the law firm’s trust account.

All lawyers in New Zealand need to comply with anti-money laundering legislation (AML) so you will need to supply your lawyer with some ID and a proof of address that can be verified. This is also required for your bank so it is good to get it all sorted early in the process.

The next step is searching for your home, think about the location and specifications that suit your needs. It is a good idea to inspect the property yourself to look for things that may not have been apparent in the listing photos.

Sale by auction

At auction, a bid is an unconditional offer. This is why you must have all of your due diligence done before auction to know exactly what you are buying. This can include a valuation report, building or engineers report, finance, toxicology report, EQC checks, Land Information Memorandums (LIMs) and a title check. It is important to go through these things with your lawyer to ensure that everything is in order. You also may find that it is necessary to enter into a pre-auction agreement with the vendor to include further terms that would apply if you were successful at auction.

If you are the successful bidder, you typically need to pay a 10% deposit on the day of the auction. Keep in mind that you will not be able to use KiwiSaver funds as a deposit at auction as a fully signed agreement is required to apply for a full withdrawal and this can take up to 10 working days to be processed by your KiwiSaver provider.

Sale by offer and negotiation

If you want to make an offer on a property, get in touch with your lawyer so that a sale and purchase agreement can be drafted. Real estate agents will sometimes draft the agreement but we strongly recommend showing it to your lawyer prior to signing. The agent may try to assure you that a Solicitor’s Approval clause will satisfy your lawyer, but the reality is that there are limited changes we can make under this.

Your offer can be a conditional one, where you include conditions that must be met before the agreement goes unconditional. A standard agreement provides the option for it to be conditional on you being satisfied with a building report, Land Information Memorandum, toxicology report and obtaining suitable finance. Further Terms can also be added to the agreement such as;

  • obtaining suitable insurance
  • assigning EQC claims to you
  • changing the settlement date if there is a COVID-19 lockdown
  • a sale condition that makes your purchase conditional on the sale of your current property.

The conditions need to be met in the time frame specified in the agreement. Once all conditions have been met, the agreement becomes unconditional.

The vendor may counter-offer in which case you would be able to negotiate, they may also reject the offer or not accept some of your conditions. If the vendor accepts your offer they will sign and date the agreement.

When do I get the keys to my home?

The last step in the process of buying your first property is settlement where you get the keys and your name goes on the title as the registered owner. Between confirmation and settlement you will need to visit your lawyer to sign documents. You are also entitled to a pre-settlement inspection of the property that allows you to make sure that everything is working and there hasn’t been any damage to property since your last visit. Your lawyer can negotiate with the vendor’s lawyer for a price reduction or ask the vendor to fix damage if there are any problems.

Settlement date is when the rest of the money is paid to the vendor. The funds to purchase the property will be in your lawyers trust account (which may be transferred by you, your bank, Kāinga Ora and your KiwiSaver provider) ready to be sent to the vendor’s lawyer. Make sure you are contactable throughout the day, your lawyer will call or email to check that you’re ready to settle. When the vendor’s lawyer has confirmed that they have received your funds, your solicitor will transfer the title to you by registering the property in your name in the online system (Toitū Te Whenua Land Information New Zealand). After settlement is complete you will be notified by your solicitor and you can pick up the keys to your new home!

Buying a property is a huge step and a great achievement. It is a good time to think about making a Will and how your assets would be split in the event of a relationship breakdown. This article covers the general process of purchasing a property but keep in mind that your situation may be more bespoke. One of our experts at Parry Field would be happy to chat if you have any questions or would like to take the next step in your home-ownership journey.

If you would like to discuss this you can contact Luke Hayward lukehayward@parryfield.com Maria Hayes mariahayes@parryfield.com or Cora Granger coragranger@parryfield.com at Parry Field Lawyers.

 

A Land Information Memorandum (LIM), is a report containing current information that the local authority has about a property. LIM reports can include:

  • Storm water and sewage drains information
  • Special characteristics of the land such as potential erosion, falling debris, hazardous contaminants or slippage that is known to the authority
  • Information regarding drinking water supply
  • Any permits, consents, certificates, orders or requisitions that affect the land issued by the local authority or the building consent authority
  • Whether any rates are owed on the land or if it is subject to a levy
  • Whether there is any Heritage New Zealand protection
  • Any conditions or information regarding the use of the land
  • Or any other information the local authority considers relevant.

LIMs are useful documents but you should keep in mind the report only includes what is in the current records of the local authority. LIMs do not contain information regarding cross leasing or development of the property, conditions imposed on developers, information on what can be built on the land, services available to the land and any changes to town planning provisions or whether the land is subject to a government right of acquisition. As part of your due diligence process you should strongly consider obtaining a copy of the title, a building report, EQC information and a toxicology test.

How much will a LIM cost?

The fee for obtaining a LIM report is generally between $250 – $450 depending on which council the property falls under and whether you use a fast track/urgent service or a standard service. Fast track services are useful if you don’t have much time before an auction or confirmation date. We recommend paying the one-off cost for a LIM, it may alert you to something fundamentally unsound about the property and save you from the costly exercise of purchasing a problematic property. Note that if you do not obtain the LIM yourself (perhaps the agent has supplied one) you will not be able to pursue the council if it contains any errors.

How do I get a LIM?

One of our property experts can order a LIM for you or you can get one directly by applying through your local council or district’s website. We can review your LIM to help identify any issues.

If you would like some more information on the above you can contact Aislinn Molloy aislinnmolloy@parryfield.com or Catherine Hattaway  catherinehattaway@parryfield.com at Parry Field Lawyers.

 

Entering into agreement and contracts is a crucial part of business. It is important to ensure that these transactions take place without hiccups, as disputes in contract can be costly, time consuming and damage relationships. In our line of work, we see similarities in the hurdles that trip people up when they are entering into contracts. To help with this we have created this list of 7 useful tips to assist and point out the hurdles to avoid when entering into contractual agreements.

Contract Formation

  • The basics required for the formations of a contract are: Offer, Consideration (usually money) and Acceptance. If those exist a contract may be in place – even if it is not written down.
  • Make sure you receive a signed copy of the final version of the contract. We often see issues arising where one party signs and send the contract to the other party, on the understanding that the contract is finalised, but the other party makes further changes before signing or doesn’t sign the contract at all.
  • It is essential to ensure you receive a finalised contract which is signed by all parties/ which incorporates all agreed changes.

Record Keeping

  • Save important emails, relevant folders, keeping written records of conversations (follow up email recording what was agreed; meeting minutes etc).
  • Tailor a system that works for you personally, works for your team and your organisation. Be disciplined and stick to it, making sure the process is clear and being followed by all relevant people.
  • Take time to review your process every now and again, to ensure they are still fit for purpose.
  • There are some legislative and contractual requirements for documents and records that must be kept for a specified time. Know your obligations and abide by them.

Language

  • If you have a few people in your business who enter into contracts for your business then when they are sending an email or making a phone call they have the potential to commit your business to something.
  • If that’s you, ensure that you do not use language that can commit the business to transactions unless you are 100% sure that what you are doing is acceptable, and achievable. To avoid this use “less binding” phrases that do not commit the company, i.e.
    • “I will seek instructions”
    • “I will confirm in writing”
    • “I will talk to the leadership team and confirm”

Good Faith Transactions

  • While it is important to maintain good relationship it is hard, expensive and time consuming to get money back once it is paid, so if you are making a payment make sure there is an agreement in place.
  • To ensure a smooth transaction it is good practice to keep a record of the circumstances of good faith payment with an emphasis on recording when it would be repaid if no agreement was reached.

Variations

  • Changes to contracts are common practice in business. Variations offer much needed flexibility to agreements and allow contracts to be useful even in changing circumstances. However, poorly managed variations can present more bad than good. Poorly managed variation can be time consuming, expensive and strain the relationship between parties. They can result in misunderstanding or confusion between the parties or end up in lengthy and costly litigation.

 Practical Tips:

  • Ask whether a variation to the contract is necessary, or if it can be dealt with some other way.
  • Check the processes for variation in agreements.
  • Clearly specify the terms of the contract that are being varied.
  • Consider the flow on effects on other clauses.
  • Minimise as much as possible oral variations and if they occur, record them in writing.

Reviewing Documents

  • If contract documents are not standard, are new/unfamiliar, have substantial variations to them, or carry the potential for increased liability, we recommend having the documents reviewed. Reviews might be internal, with a colleague or supervisor, or you could let a lawyer review documents.
  • Make sure you give the person reviewing the documents all relevant paperwork (the full contract) etc; so they can ensure consistency and understand the context when they review.

Confidentiality

  • Have a system in place to ensure confidentiality is kept and there is a process for dealing with breaches, as they may occur.
  • Make sure documents are marked as confidential.
  • When sending sensitive emails, double check who you are sending to and who is copied in to the email. Check long email chains for sensitive material.
  • Check your legal and contractual requirements. Are their specific requirements in your contracts to keep material confidential, or are there individuals you have to notify if there is a breach?

We hope that these tips are helpful in your negotiation of contracts. If you’d like to discuss then our team of experts would be happy to do so.

This article is not a substitute for legal advice and you should consult your lawyer about your specific situation. Please feel free to contact Steven Moe – stevenmoe@parryfield.com,  Michael Belay – michaelbelay@parryfield.com or Diana Youssif – dianayoussif@parryfield.com at Parry Field Lawyers

Business can be complicated but it doesn’t have to be.  We have helped thousands of clients and know about the key legal areas that will affect you and have just released our fully revised and updated “Doing Business in New Zealand” free handbook.  You can download it here.

New Zealand consistently ranks as one of the most business-friendly nations in the world. Given this appealing status and the interest we receive both from local and international investors, as well as form businesses and entrepreneurs, we produced the “Doing Business in New Zealand” handbook a few years ago and now have fully updated it.  It is intended to introduce and provide information for those who may be unfamiliar with how business is done here. The handbook provides introduction on business structures, investment rules, employment, disputes, property, intellectual property, immigration, privacy and social enterprise, just to name a few examples.

If you have further enquires please contact Steven Moe at stevenmoe@parryfield.com or on 021 761 292 or Kris Morrison at krismorrison@parryfield.com.

Be sure to check out our other free guides too, such as Startups: Legal Toolkit and Social Enterprises in New Zealand: A Legal Handbook.  We also provide free templates for resolutions, Non Disclosure Agreements and other resources on our site as well as many articles on key topics you should know about.

We recently attended a webinar by the Overseas Investment Office (OIO) on 20 July 2020. The purpose was to discuss some reforms to the rules and in particular the new “Urgent Measures Act”.

The purpose of the new changes are to support the Government as part of its business response to COVID by encouraging growth through investment. So there are some simplifications made to the normal OIO process– while also ensuring there are rules in place in relation to sensitive land and other categories of assets.

Before we get into detail it is worth noting that the guides on investing in New Zealand at the OIO website are quite helpful, for example, this one on which transactions need consent.

Overview

There are four key changes:

1. Temporary Emergency Notification Requirements;
2. New national interest assessment;
3. Simplified screening; and
4. Stronger enforcement powers.

In this article we will set out the key points for each of them.

1. Temporary Emergency Notification Requirements

Notification is required in relation to ownership/control there are (no monetary thresholds) and will be needed for increases above 25%, ownership beyond 50%, 75% or to 100%. They said that this is a deliberately broad approach they said. This is a temporary regime which will only apply for a limited time.

Who needs to notify? This should be done by any person who has more than 25% overseas ownership, are non-citizens and non-residents, and have more than 25% control of a board, as well as those who are associates.

What needs to be notified? Purchase of more than 25% of a business, increases in key thresholds (above) and purchase of more than 25% of the property of an NZ business (including land interests that would not be sensitive).

When to notify? 16 June is when legislation came into force, so only for those deals after that.

What do you not need to notify? If you already have consent, or if you need consent under another criteria.

Examples of when notice is needed:

Direct: An overseas entity buying all shares of an NZ company – needs to be  notified, even if a shell company.

• Indirect: Overseas person buying an Australian company that has an NZ entity – need to notify (ie even though already overseas owned).

• Notification of property: If a company is being bought that has property, then you need to notify. If a lease to an overseas person, then it depends if that is more than 25% of the value of the NZ companies property at the NZ Company.

There is no cost to notify and there is a form online. There is a much higher level of information needed than normal. It will take around 35-40 minutes to fill in the form. The type of information required includes type of transaction, if there is a target entity, the investor themselves etc.

Once submitted, they will assess if more details are needed or if the transaction can be approved. Generally this takes around 10 days (if the transaction can proceed). A few applications may be allowed to proceed subject to conditions. A few applications may be denied or need more information.

If more information is required, then you will need to allow a total of 40 working days and the aim is to resolve all within 70 working days.

If a transaction is not notified, there can be serious implications. The highest penalty would be civil penalties of up to $10million.

2. National interest assessment

The OIO emphasised that they want investments to proceed. So the question they ask is going to be:  “Is the transaction  is contrary to the national interest?” This test will be applied:

• If further assessment is needed;
• If it is a strategically important business; and
• If the Minister of Finance wants to ask more questions about an application.

The OIO will look broadly at factors such as competition, social impacts, character of the investor, national security, public order, international relations, alignment with NZ values and interests as well as broader policy settings. The factors are very broad. As an example, they would look more closely at military technology investments than other investments.

An application could have conditions added to manage risks, or it could be prohibited or it could just proceed without conditions.

3. Simplified Screening

This simplified screening includes that low risk transactions that do not need consent eg small increases in shareholding. There are also automatic standing consents for eg listed entities that are not more than 50% owned overseas, land adjoining sensitive land, managed investment schemes and some debt transactions.

As an example, if an overseas person is buying land next to sensitive land, that may qualify for the automatic standing consent. Also, some loans and debt can qualify for automatic consent.

4. Enforcement powers

These are increased, such as adding enforceable undertakings as a possibility as well as maximum penalties including  (changing from $300,000 to $500,000). For a company, it could range from $300k to $10 million. The reason for this is that breaches are serious and so the penalty reflects that.

Conclusion

Overall it appears that the intention is to allow easier investment in New Zealand. However, as you can see from the detail in this short update it is worth speaking with advisors about the particular context as there are likely to be additional points to consider to ensure you qualify for the simpler regime.

For more information the OIO website has a lot of detail. For example, the above is discussed here https://www.linz.govt.nz/overseas-investment/changes-overseas-investment-act.

Please note that this is not a substitute for legal advice and you should contact your lawyer about your specific situation. Please feel free to contact us on 03 348 8480 or by email to Steven Moestevenmoe@parryfield.com or Kris Morrisonkrismorrison@parryfield.com

 

In part one and two of our articles on buying and selling a business we looked at both the important issues and what the agreement for sale and purchase should cover.  In part three, we will consider the impact of Covid-19 and how it has affected the buying and selling process and further points that need to be considered during these unprecedented times.  Whether you are considering selling or purchasing a business, or you have just started the process, the following should be taken into consideration:

Due Diligence

In part one, we explored the importance of due diligence and key questions that should be asked. The effects of Covid-19 should not alter your approach to carrying out due diligence, in fact it may be that a more rigorous approach is taken by buyers to understand the implications Covid-19 has had on the business and how it would fare if another situation like this were to happen again. When carrying out due diligence, both seller and purchaser should be mindful that more time may be required to undertake and complete the process due to the restrictions in place, as the ability to obtain information such as important documentation or carrying out physical inspections may not be possible right away.

Material Adverse Change Clauses

As we are in the midst of the unknown, agreements between buyer and seller will be subject to greater scrutiny and negotiation. The inclusion of material adverse change (MAC) clauses in an agreement is likely to be of particular interest, especially to a buyer. A MAC clause is used to reduce risk and uncertainty for buyers during the period between the agreement and the date the deal closes. Such clauses give the right for the buyer to walk away from a deal. For a seller, taking the current climate into consideration the inclusion of such a clause should be drafted carefully, thinking about what is considered to be a change and looking to the future and the potential of a similar situation occurring again.

Finance

As a buyer, if you are obtaining finance from a third party such as bank, it may take longer and become more difficult. In these uncertain times, banks may be reluctant to lend or may seek additional requirements are satisfied in order to obtain approval. Therefore, it important that the sale and purchase documentation covers the risks that are associated with lending during this time.   For example, the seller may want to include a break fee, if finance is unable to be obtained by the buyer. Where a buyer may want the ability to walk away from the deal and have a financing out condition. It will be up the parties to balance the risk and reach an agreement that they are both comfortable with.

Warranties

In this current climate, sellers may be reluctant to agree to warranties about the state of the business, as the long term effects of Covid-19 on a business may not be known for some time. While for buyers it may be that they look at additional situation-specific warranties in relation to this pandemic. Warranties will be subject to robust negations even more so than before, therefore again, it will come down to the parties being able to find the right balance in terms risk.

Other Conditions

The uncertainty for many businesses during this time may see the inclusion of other conditions in a sale and purchase agreement. Such conditions may relate to maintaining current suppliers or current employees.

Conclusion

As the restrictions ease, many are still trying to navigate their way through the unknown.  It is difficult to know the long term implications of Covid-19 and effects that it will have had on the businesses that survived the lockdown period. Therefore, it will be important for those looking to buy a business to ensure they have done their ‘homework’. While sellers will need to be upfront and ensure they are covered if a situation like this were to ever occur again.

We often help both buyers or sellers of businesses and in this unique context would be happy to talk about your situation to make sure the agreements work well.

This article is not a substitute for legal advice and you should contact your lawyer about your specific situation. We would be happy to assist in your journey. Please feel free to contact Steven Moe at stevenmoe@parryfield.com or Kris Morrison at krismorrison@parryfield.com should you require assistance.

What should the agreement cover?  

In the first part on buying or selling a business here we saw there were some big picture things you need to think about when buying a business.  This part will look at what the agreement for sale and purchase should cover and some key things that need to be thought through.  While written from the point of view of a Purchaser, it will also raise the same issues that a Seller will need to think through.

Assuming the decision is to purchase the business (rather than the shares of the company – this point was touched on above) then a commonly used template agreement in New Zealand is produced by the Auckland District Law Society.  While it provides a base and a process it can also be adapted to reflect the situation.  In terms of process what usually happens is the agreement gets signed and it is subject to conditions – examples of the way that it can be customised are:

  • Documents to be supplied: We commonly add in many additional terms which relate to the due diligence discussed above and what records will be provided.  This usually involves a careful discussion with the client to determine what they expect to see and then being clear about what they have.  If you ask for a licence that the seller should have and they cannot provide it, then obviously a red flag goes up.
  • Conditions: These could include the purchaser arranging finance for the purchase by a certain date, being satisfied with the results of the due diligence, having the lease (if there is one) assigned to the purchaser, obtaining consents or licenses needed.  Again, this will vary depending on the business so there is no standard wording that can just be pasted in.
  • Warranties: It is common to include warranties – these are essentially statements by the Seller about the state of the business. For example, a warranty might state that there is no litigation that the company is a party to.  Often these will be subject to robust negotiations – for example, the Seller may want this to say “as far as I am aware” (a knowledge qualifier), or refer to a monetary value such as there being no disputes above “x” dollars (a monetary threshold qualifier).
  • Restraints: It is common to include restraints on the seller of the business – particularly if it were, for example, a catering business or there was potential that they start something new that competes.  Restraints need to be reasonable and usually will involve a certain time period such as one year and there will be a geographic area which is specified.  Again, this can be a point of rigorous negotiations.
  • Intellectual property: Goodwill and reputation often make up a big part of the value of the business which is being purchased so it is important to be clear about what that includes – for example, names (are they trademarked?), website, Facebook pages, client lists, patents or other registrations.
  • Contracts: As part of the due diligence it is important to look at the really key contracts for the business and focus on whether they have change of control provisions and/or the ability to novate or assign to a purchaser.  It might be that there will be issues with the purchaser taking on contracts so that is important to find out as quickly as possible.
  • Tax and accounting: We always advise involving an accountant to assist with these aspects and confirming with them the tax position – for example, that the transfer will be free of GST.  Most of the time both entities will be registered for GST and no GST will be charged but it is far better to get this clear from the start than needing to have a last minute panic.

This article is not a substitute for legal advice and you should contact your lawyer about your specific situation. We would be happy to assist in your journey. Please feel free to contact Steven Moe at stevenmoe@parryfield.com or Kris Morrison at krismorrison@parryfield.com should you require assistance.