There are often a number of reasons behind a decision to list your business for sale. But whether you have had a new career opportunity open up, a change in personal circumstances or simply an offer for the business that is hard to refuse, you want to sell as quickly as possible. This article will explain what the sale of business process looks like.

The Sale of Business Process: An Overview

In New South Wales, the standard sale of business agreement does not impose a minimum time period between the exchange of contracts and settlement. Nevertheless, there are a few important steps which need to take place in preparation for the sale.

Depending on the type of business you are selling, you may have a legal obligation to obtain the consent of third parties. A failure to obtain this consent will often be an obstacle to finalising the sale and cause you delays.

Requirement to Obtain Consent

At the time you first purchased the business, you may have signed contracts with the:

  • existing owner or franchisor; and
  • lessor.

These contracts commonly include a requirement for you to obtain the consent of a third party when you sell the business to someone else.

This requirement to obtain consent is easy to overlook, but crucial in order to comply with your contractual obligations.

Obtain Landlord’s Consent

If you are leasing your premises, you typically have to get your landlord’s consent for the incoming purchaser to become the new tenant.

The landlord may be able to refuse consent to transfer the lease if your contract with them allows it. Usually, the contract strictly limits the reasons for which consent can be withheld. You may want to seek legal advice if you have doubts about whether your landlord has unreasonably withheld their consent.

Practically speaking, it is the landlord’s legal representative who will typically draft the deed of assignment to transfer the lease. Therefore, the landlord’s consent is essential for the sale to progress.

Obtain Franchisor’s Consent

If you are selling a franchise, you typically have to apply to the franchisor in writing for their consent. You need the franchisor’s consent to transfer the franchise to the incoming purchaser.

However, if the franchisor does not consent, they have to provide written notice of their reason for refusing consent.

The signed franchise agreement between you and the franchisor will likely set out the limited grounds upon which a franchisor can refuse to consent to the transfer. Generally, the franchisor must not unreasonably withhold their consent.  

A franchisor can withhold their consent in a number of circumstances, such as if the incoming purchaser:

  • is unlikely to be able to meet their financial obligations under the franchise agreement;
  • does not meet the franchisor’s selection criteria; or
  • does not agree, in writing, to comply with their obligations under the franchise agreement.

Additionally, the franchisor can refuse consent if you have not complied with your obligations under the franchise agreement. This could include situations in which you have not:

  • paid an amount owing to the franchisor; or
  • remedied a breach of the franchise agreement.

Key Takeaways

The sale of business process can be involved. Delays can occur if you do not understand your obligations and comply with them at each stage of the process. Therefore, to ensure your sale runs as smoothly as possible, ensure you obtain consent from your landlord to transfer the lease to the new purchaser. If you are selling a franchise, you will also need to obtain the franchisor’s consent.

If you need help selling your business, get in touch with LegalVision’s sale of business lawyers on 1300 544 755 or fill out the form on this page.

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.
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