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Find Previous Featured Articles | 
May 2012
Employee Incentives and Share Option Schemes
April 2012
Hotels
March 2012
Marketing
February 2012
International Services
January 2012
Contract Law
December 2011
November 2011
Recruitment
October 2011
Intellectual Property Update
September 2011
Commercial Disputes
July/August 2011
Holidays, Gym Memberships, Nights Out
June 2011
Social Media and Comparative Advertising
Visit Our Archive for previous newsletters covering Hospitality, Recruitment, Intellectual Property, Food & Drink, Commercial Property, Employment, Hotels, Restaurants, Start Ups and many other topics |
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Quick Links
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Visit Our Archive for previous newsletters covering Hospitality, Recruitment, Intellectual Property, Food & Drink, Commercial Property, Employment, Hotels, Restaurants, Start Ups and many other topics
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Dear Subscriber,
Welcome to our June newsletter.
In this month's newsletter we focus on the importance of "doing your homework" when embarking on a purchase or a business venture. We have an article dedicated to the due diligence exercise and one on the Sale of Goods Act 1979 with a particular emphasis on remedies.
Whether you are buying a car, business or taking on a lease it is imperative that you do your homework carefully so that you know exactly what you are buying. As the buyer, the maxim of "caveat emptor" or "let the buyer beware" will apply to your purchase. This means that you will be buying the asset subject to all of its defects and neither the seller nor the seller's agent, unless specifically asked, is required to provide this information to you. The onus is therefore on you to carry out your own checks and investigations through a process known as "due diligence".
No one understands the importance of due diligence more than our featured client this month, Ashley Winston of Palmdale, who offers a specialist car finding service. Located in Ealing, West London, Palmdale offers the full service: from helping its client choose the car they want and searching for its availability throughout the country to negotiating with the seller, performing the relevant checks and investigations to ensure the car is perfect and delivering it right to your doorstep. Palmdale has sourced cars for a diverse range of clients including celebrities, businesses, professionals, new mums and learner drivers, as well as everyone in between.
If you have any queries or need advice in relation to any of the matters set out in this newsletter or any other legal issues, do not hesitate to call us on 0207 440 2540 or e-mail us at info@fortunelaw.com. We are always happy to help.
Further information
Fortune Law provides businesses with "a one stop shop" service dealing with commercial property, commercial litigation, employment, corporate and commercial law. We can also provide a dedicated service for international clients and we specialise in the hospitality sector.
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Shainul Kassam
Fortune Law Solicitors |
Featured Client: Palmdale www.palmdale.co.uk  | | Ashley Winston |
"When our biggest ever partnership agreement came with a 26 page contract, we called in Fortune Law's help straightaway. They started almost immediately and reviewed the contract within just a couple of days. They provided clear advice on areas of both legal correctness and matters that may affect the business going forward. No stone was unturned. And they were then on hand with advice for the final last-minute wrangling with the other side's solicitor. I would have absolutely no hesitation in recommending them."
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Doing Your Homework
It is important for any prospective buyer or investor to know exactly what they are buying or investing in. Conducting due diligence is therefore an imperative process for a prospective buyer/investor to undertake when embarking on a significant investment. But what does due diligence even mean?
What does due diligence mean?
Due diligence essentially means "doing your homework" thoroughly before investing time and money on a potential business venture. When making a significant investment it is vital that you carry out the necessary checks in order to ensure that the information being provided to you is accurate. This will at least enable you to know about a problem in advance and gives you the option to walk away or argue for a reduction in price. In this article we focus on what to look out for when buying a business.
Although there is no exhaustive list to follow the following points should always be considered when conducting legal due diligence. Please keep in mind that legal due diligence is not the only type of due diligence that is necessary to undertake, and other areas which will need to be investigated when buying a business include accounting and financial due diligence.
Business purchases - what questions should I ask?
- The Seller: Who is the seller? Is it an individual or a company? If it is a company, are there any charges held over the assets, for example held in favour of the seller's lenders? If the seller is an individual or partnership, a bankruptcy search needs to be conducted. Does the seller even have authority to sell the business to you or does it need third party consents from other business partners or shareholders for example?
- The Employment Situation: Who are the key employees in the business? How will they respond to the sale? Will any of them continue after the purchase? If the acquisition is of business assets then the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) will automatically apply. Will more employees need to be hired? Could there be any potential employment claims?
- Pension Schemes: Are there any pension schemes in place? If not, when will it be necessary for such a scheme to be implemented? What are the employees' pensionable salaries? How much is the employer contributing?
- Intellectual Property: Query all intellectual property rights for example domain names for website, brand names or trademarks which the seller owns and also those which have been applied for. It is sometimes the case that important IP rights are owned by group companies or individuals and have not been transferred as thought.
In addition, to the above, due consideration needs to be given to Commercial Property, Health and Safety, Competition, Information Technology, Environmental issues and others.
Most people buying a business want to buy the business and then do what they do best, which is run it! It is also often tempting due to time constraints and the desire to minimise legal costs to circumvent a detailed due diligence exercise.
However experience has shown us that taking things on face value can often costs clients tens or even hundreds of thousands of pounds. Asking the right questions from the right people and making sure you get the requisite contractual assurances to back these up in a sale agreement will be well worth the investment and peace of mind.
Whether you are buying a business or making an investment, Fortune Law has the necessary expertise and experience to advice you on all aspects of the transaction. Please get in touch by telephone on 020 7440 2540 or by e-mail at enquiries@fortunelaw.com.
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The Sale of Goods Act 1979
Your Rights
Contracts often contain express provisions to deal with the instance of a breach of contract. So for example if a business purchases a new server or office furniture, this would be considered to be a contract for the sale of goods and the contract may require the seller to make good or replace defective items.
You should be aware that the Sale of Goods Act 1979 (SGA) also grants further protection to buyers. In particular, it provides that:
- The seller must have the right to sell the goods;
- Goods sold by description must correspond to the description;
- Goods must be of satisfactory quality; and
- Goods sold by sample, must correspond to the sample in quality.
These terms will be implied into the contract. This means that the SGA will put these terms into all contracts for the sale of goods no matter what the parties themselves have agreed to in the terms and conditions of sale. As the buyer you therefore have a further layer of protection.
Breach of these implied terms and available remedies
A breach of contract is where a party to a contract fails to perform, precisely and exactly, his obligations under the contract. This may take various forms, for example the seller delivering a faulty or defective office chair. Where a seller breaches one of the terms implied by the SGA, the buyer will be entitled to a remedy. Usually the remedy available will largely depend on the type of term breached.
As all of the above implied terms are classified as "conditions", which means that they are important terms that go to the heart of the agreement any breach of which would entitle the buyer to the following remedies:
- Damages: This is the most common and basic remedy available for breach of contract. It is a common law remedy that can be claimed as of right by the innocent party. This is a monetary sum fixed by the court to compensate the buyer. The object of damages is usually to put the innocent party into the same financial position they would have been in had the contract been properly performed.
- Repudiation of the contract: This is also a common law remedy and allows the buyer to reject the goods and ask for their money back as long as they complain within a reasonable time. "Reasonable time" is not defined in the SGA, but it does recognise that the buyer will need sufficient time to examine the goods to ensure they are of satisfactory quality. The court will decide what a reasonable time is by taking into account all the circumstances of the case.
- Additional remedies for consumer sales: Where goods do not conform to the contract of sale at the time of delivery or for a period of six months after delivery, under the SGA the buyer can require the seller to repair or replace the goods. The seller must do so within a reasonable period of time. Where the seller does not comply with the buyers request to repair or replace or it would be disproportionate to do so, the buyer can then request a price reduction or rescind the contract. Rescission is putting the parties back in their pre-contractual position (the buyer gives back the goods and the seller gives back the purchase price).
- Specific performance: This is an equitable remedy which means that it is granted at the discretion of the court. If this is the case, the seller will be compelled to perform his contractual obligations. Specific performance is only usually ordered where damages are not an adequate remedy.
You should keep in mind that the buyer has a duty to mitigate his loss and so cannot recover those losses which he could have avoided by taking reasonable steps.
Whether you are putting together a set of terms and conditions, a contract to document a specific transaction or relationship, Fortune Law has the necessary expertise to advise and assist you with all aspects of Contract Law. Please get in touch by telephone on 020 7440 2540 or by e-mail at enquiries@fortunelaw.com. |
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