By Natalie Gosper, a Solicitor in our Commercial Law team.
The standard conditions contained in the Contract for Sale of Business 2015 edition contain a number of warranties or promises made by the vendor about certain aspects of the business.
As they are contained in the ‘fine print’, they can’t be that important, right?
Wrong. The vendor’s warranties and promises must be carefully reviewed to ensure the vendor knows exactly what they are stating about the business and how they will conduct the business between exchange and completion. If a vendor makes incorrect representations or warranties, the purchaser may be able to make a claim for damages, rescind or terminate the contract.
The vendor promises that ‘the equipment is proper working order’. If some equipment is not in proper working order, this must be disclosed in the contract. This sounds simple enough, but is easy to overlook especially for businesses using old or dated equipment.
‘There is no subsisting breach by the vendor of a lease’. This sounds straight forward, however the vendor should check rent payments, bond requirements and insurance obligations are up to date and any redecoration or other specific obligations under the lease have been met. During the period between exchange and completion the vendor must continue to comply strictly with the lease terms, including exercising an option to renew if applicable.