Business Licences & Permits: Know What You Need

Does the REIQ Business Sale Contract obligate the seller to have all licences required to operate the business prior to Completion? In short, the answer is no.

The Seller warrants under the contract (Clause 8.1(b)) that “to the best of the Seller’s knowledge and belief” is has either 1. applied for or 2. obtained all licences and permits etc. necessary for carrying on the business. Therefore, if the Seller did not know about a necessary licence or permit etc and this is not considered an unreasonable belief, then it is likely that the Seller does not fall short of the Contract.

Further, if the Seller applied for, prior to the Date of Contract, a particular licence and the application is subsequently rejected that is also not a problem under this contract.

Therefore, the REIQ Contract does not obligate the seller to have all licences required to run the business. However, for any licences that it has, they are included as a Business Asset (Clause 3.1 & 3.2) and they are required to be transferred to the Buyer (Clause 6.1(e) & (o)).

But what happens if they are not capable of being transferred, such as a Brisbane City Council Food Licence or a Queensland Real Estate Licence? Or what happens if they are transferrable, but there are delays and they are not transferred prior to Completion? These are problematic because the REIQ Business Sale Contract is vague on these issues.

As it is a Business Asset and there are obligations to transfer them and leave the originals of them at the Premises (Clause 6.1(m)), the Seller could have a dispute. If they are not transferred by Completion, the buyer may use this as an opportunity to get out of the contract.

Solution: The Seller must determine:

1. what licences, permits, consents and approvals are required for the business;
2. whether each of the licences are transferable or whether the Buyer must make a new application;
3. what assistance they are prepared to provide the Buyer with each licence.

A special condition should then be drafted:

1. reflecting the necessary licence details;
2. only agreeing to transfer what is capable of being transferred;
3. stating that the licences listed are all that are included – nothing else – and no warranties are made that there are any else;
4. consequences of the Buyer not obtaining any licences.

This will at least clarify the ambiguous manner in which it is dealt with under the standard contract and allow certainty for the parties as to their expectations.

Joe Kafrouni, Legal Practitioner Director, Kafrouni Lawyers

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