Key points when buying a cafe:
- the Business Sale Contract should be made conditional upon the transfer and acquisition of all necessary local and state licenses and approvals for the business.
- particular attention should be paid to any key supplier agreements to ensure continuity of supply to the business.
- State health and safety laws must be met in regard to food storage units and cooking equipment.
When considering the purchase of a cafe or similar business you will no doubt need to consider such things as the location of the business and parking for customers, the amount of passing trade and regular orders that come into the shop, and whether the current profit the shop is making is sustainable and can be increased. However, there are some other important issues that must also be considered prior to signing a contract for the purchase of a cafe.
Local Government Approvals
It is important to ascertain what licences and approvals are required from the local government in order to conduct the business from its premises such as food licences, liquor licences and outdoor dining licences. A buyer will also need to ascertain whether the business currently has these licences and approvals, whether they are transferable and whether the buyer will be able to continue to meet any conditions contained in the licences and approvals.
Coffee shops are generally required to meet many legal obligations under local laws in relation to advertising signage, health laws, workplace health and safety, and environmental laws (such as cooking emissions and fumes). Many coffee shops will require multiple licenses and certificates from their local government prior to being able to operate the business.
Therefore, a buyer should discuss with a specialist business lawyer whether the contract should be made conditional upon the satisfactory approval or transfer of all necessary licences by way of carefully worded special conditions being inserted into the contract.
The REIQ Business Sale Contract makes provision for the transfer of supply contracts and hire agreements at settlement. However it does not make provision for the buyer to ensure they are satisfied with the terms of each of the existing agreements prior to their transfer.
Therefore, if there are key suppliers important to the business’ continuity, it may be advantages to include a special condition in the Contract to ensure the buyer has time to ensure that they are satisfied with the terms of the agreements prior to the Contract becoming unconditional.
It is also important to ascertain that all food storage units and cooking equipment are not just working but that they meet the requirements of local and state health and safety laws.
Though the seller provides warranties in the REIQ Business Sale Contract in regard to the working order of all plant and equipment, it does not provide a mechanism for testing the accuracy of the warranties. Nor does the Contract provide any warranty as to whether the equipment meets local and state health and safety laws.
In some local government areas a mandatory local government health inspection (which is required to be conducted prior to the settlement) may be sufficient to dispel any concerns a buyer may have. However, in those areas where a health inspection is not mandatory it may be advantageous to discuss, with a specialist business lawyer, whether there is a need to have a special condition inserted into the contract to allow the buyer time to have the premises and equipment inspected.
Restraint of Trade
The REIQ contract only includes a restraint of trade by time and geographical area. Whilst this is often adequate in relation to a coffee shop, it does not prevent the seller from canvassing or dealing with existing customers, poaching key staff or disclosing confidential information about the business to a competitor following settlement.
If a buyer is concerned that the restraint may not be sufficient to protect the business then they should discuss with their solicitor whether a more detailed restraint of trade clause would be beneficial to protect the goodwill of the business.
It is important for a buyer to seek the advice of a specialist business lawyer prior to signing a contract. If a buyer does not seek his proper advice, they may find themselves forced to settle without the necessary licenses and approvals to conduct the business; being unable to meet local or state laws or even without the necessary stock from key suppliers. Without these protections in place a buyer may find they are unable to run their new business properly, or at all, following settlement.
Joe Kafrouni, Legal Practitioner Director, Kafrouni Lawyers
The information provided by Kafrouni Lawyers is intended to provide general information and is not legal advice or a substitute for it. You should always consult their own legal advisors to discuss their particular circumstances. Kafrouni Lawyers makes no warranties or representations regarding the information and exclude any liability which may arise as a result of the use of this information. This information is the copyright of Kafrouni Lawyers.
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