Business Fire Sale: Exclude Financial Warranties

When a business owner is selling a business for the value of plant and equipment or less, is it beneficial for the seller to exclude any warranties in the sale contract relating to the financial performance of the business?

If a business is being sold at rock bottom, or for the cost of the plant and equipment or less in a fire sale, it is important that the seller does not leave any doors open for the buyer to re-negotiate the contract or make a claim for breach of any representation regarding the financial performance of the business.

In the circumstances, the seller should:

• not agree to any due diligence condition, and certainly not in relation to the financial performance of the business;
• if using the REIQ Business Sale Contract, delete the application of standard condition 8.1(i) which warrants the accuracy of any trading figures attached to the contract;
• similarly, delete the application of standard condition 37 of the REIQ Business Sale Contract which specifically allows for the buyer to verify the books and records of the business; and
• insert a special condition into the contract advising that the seller makes absolutely no warranties about the financial performance of the business.

This way, the seller potentially removes a significant obstacle in successfully completing the sale or at least another headache to deal with.

Joe Kafrouni, Legal Practitioner Director, Kafrouni Lawyers

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The information provided by Kafrouni Lawyers is intended to provide general information and is not legal advice or a substitute for it. Business people 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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