Q. When transferring assets from one business to another what third party consents will I require?
A: We have a “business assets transfer checklist” available to download in our helpful downloads section.
Q. How do employees transfer from one business to another?
A: The Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”) applies and there is a “guide to TUPE in a business assets sale and purchase” in our helpful downloads section.
Q. The target business has 10 staff, how do I ensure they do not all leave as soon as I take over the business?
A: Employees transfer at completion as a matter of law. However, employees are free to give notice to leave under their contracts of employment. A purchaser should ensure that he remains in close contact with the seller during the negotiation and due diligence stages to ensure they are informed of anyone giving in their notice during the lead up to completion.
Q. Will I have to pay for staff holidays that have not been taken by the date of completion?
A: The costs of employees including salaries, benefits and accrued holidays are apportioned at the date of completion and therefore you will only pay for holidays due after completion. You should note that the contracts of employment will set out what holidays are due for each employee, however the statutory minimum is 5.6 weeks paid holiday including bank holidays.
Q. Some of the staff do not have written contracts, how do we know what rights they have as employees?
A: All employees have statutory rights and the terms of their employment will be implied into their contracts by statute and common law. You should note that employees have a right to written terms of employment and therefore, you should arrange for this to be done as soon as possible after completion
Q. How can I be sure that I will retain the trading contracts?
A: One of the completion documents will be an assignment of the goodwill and contracts of the business which means you as the purchaser, will have the right to stand in the shoes of the seller after completion and complete the contracts currently in place.
Q. Do I need the consent of third parties to the trading contracts in order to take over the contracts?
A: Some contracts do require the consent of third parties for them to be assigned or transferred to a purchaser, such as leases, hire purchase contracts and distribution agencies. Consent can be obtained from the third parties involved either running up to completion or after completion. If consent is being sought after completion, the purchaser will be dealing with the contract as trustee for the sellers until such time as consent is obtained
Q. Will I have to keep buying from the same suppliers after completion?
A: No, you are free to choose who you purchase your supplies from after completion and can change suppliers if you so choose. However, any current supply contracts should be checked to ensure there are no penalties for terminating them.
Q. What happens if a supplier refuses to supply me following completion?
A: If there is no requirement to continue to supply pursuant to any contract in place with the Target, then you will need to find an alternative supplier.
Q. Do I have to take on all the contracts of the business including the lease hire contracts?
A: It is for the purchaser to negotiate with the seller prior to completion as to what assets and/or liabilities the purchaser is to take on following completion. Most assets that are subject to lease hire contracts are usually vital to the smooth running of the business and therefore, a purchaser will need to take these liabilities on following completion.
Q. What do I do if the seller sets up in competition around the corner from the premises?
A: You can avoid the risk of this happening by ensuring that the contract contains fair and reasonable non-competition restrictions setting out what the seller cannot do following completion.
Q. Can the seller continue to use the business name after completion?
A: The Deed of Assignment of goodwill and other related contracts will be worded in such a way that the business name is included in the purchase and the seller agrees to transfer the business name to you. The wording in the contract will include a restriction on the seller using the same name or a similar name following completion.
Q. I am buying a business which has a lease that has five years left to run. Can the Landlord remove me as a tenant after the five years is up?
A: A tenant who has complied with the terms of the lease has a right of renewal unless:
• The Landlord can show that he intends to redevelop;
• The Landlord offers suitable alternative accommodation; or
• The Lease takes away the renewal rights (this is rarely the case with retail/catering leases).
Q. The Lease states that I require the Landlord’s permission to assign the Lease or change the business that I run from the premises. What is to stop the Landlord from refusing to allow me to do these things?
A: Usually the Lease will state that the Landlord cannot unreasonably withhold consent, however, the Landlord will ask to review any accounts of the prospective buyer of the Lease and ask for references on that prospective buyer. The Landlord may also ask for a rent deposit to be paid.
Q. When the rent under the Lease is due for review, is there any cap on the amount of increase?
A: In most Leases, the rent review clause has a provision that the rent is increased to the market rate at the time. However, if the market rate has dropped since the previous review, the rent will not usually be reduced.