If you’re selling a hospitality business, having a properly drafted Sale of Business Contract is vital to ensure the transaction doesn’t leave you with a sour taste in your mouth (literally).

Most states in Australia have a prescribed contract for Sale of Business Agreements. That being said, including certain special conditions and annexures will ensure that the agreement goes smoothly, much like a glass of red goes down after a long day of work.

Legal Considerations when selling a hospitality business

Here are just several key issues to consider when you’re selling a hospitality based business, and which you should consult with your business sale lawyer on:

Transfer of lease

Usually, a hospitality business will operate from leased premises, which will need to be transferred concurrently with the sale. Alternatively, the lessor may wish to issue a new lease. A business sale lawyer will be able to examine the documents to determine the mechanism for transfer and the best way to proceed.

Liquor license

If there is a liquor license in place, there is probably a prescribed mechanism for transfer of same or the grant of a new license, which needs to be considered before final terms are agreed. Usually, contracts for sale of a business that involve the use of a liquor license will have the grant or transfer approval of that license as a pre-condition to settlement.

Employees

When employees are transferred, it often indicates there will be an adjustment at settlement, taking into account any outstanding entitlements. Before this, however, it is important to consider how employees will be notified, and whether or not the purchaser will choose to employ any staff at all. Address this issue in the terms of the Sale of Business Agreement.

Stocktake

Stocktake often happens right before settlement, usually meaning a slight adjustment to the settlement figure. The finer details of stocktake need to be fleshed out in the Sale of Business Agreement. In particular, there may need to be provision for a deduction for the value of the stock, which is not of merchantable quality.

Ongoing contracts

More often than not, these businesses already have existing contracts, some with suppliers and others with third parties. The Sale of Business Agreement should include the method of transferring or assigning any contracts, as should an onus on the vendor to introduce and facilitate a relationship between the purchaser and those third parties.

Conclusion

When you negotiate the terms of selling a hospitality business, it’s important to seek legal advice from a business lawyer. There can be serious implications if you don’t get proper legal advice, including after the sale has been finalised.

Emma Jervis

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