Gym Sales: Legal Aspects For A Buyer
Key Points
- The Business Sale Contract should be conditional upon a thorough investigation of the financial standing of the gym.
- The Business Sale Contract should be made conditional upon the buyer’s satisfaction with the terms of all Personal Trainer contractor agreements.
- Investigations should be made into the suitability of the premises and equipment for its intended use.
Prior to signing a contract to purchase a gym it is likely that a buyer will have ascertained the extent of the gym’s membership, whether the business is well situated and whether the premises has enough parking or ease of access for its members. However, there are some other very important issues that must also be considered in gym sales prior to signing a contract.
Financial Investigations
As a gym is heavily reliant on income from its membership fees, it must be ascertained whether these are sufficient and reliable enough to conduct the business on a day-to-day basis. The REIQ Business Sale Contract only provides a buyer with fifteen (15) business days to verify whether the financial accounts of the business are true and correct.
A specialist business lawyer can assist by drafting a special condition to allow a buyer enough time and access to financial information to ascertain the true value and running requirements of the gym. A buyer should undertake these investigations with their accountant or financial advisor.
Key Gym Contractors
It is common for gyms to have a mixture of employees and contractors working for them. Most personal trainers will contract to the gym for their services, whilst most sales and administrative staff will be employees. Personal trainers are often key staff members of a gym so the terms of their contracts will be important.
It is also worth checking that the trainers engaged as contractors are genuinely contractors. If, in substance, they are employees, the business may owe them wages and leave, and superannuation can be payable even to some genuine contractors. A buyer who keeps them on the same terms carries that risk from completion, and should take a warranty and indemnity from the seller for the period before it.
Although the REIQ Business Sale Contract makes provision for a buyer to select which employees it will take on, the Contract simply provides for the transfer of personal trainers contracts. It does not provide a mechanism for a buyer to determine whether it is satisfied with the terms of each of the contracts.
Therefore, it is important to discuss the issue of contractors with a specialist business lawyer to ensure, where necessary, a special condition is inserted into the Contract to ensure that a buyer has the opportunity to decide whether it is satisfied with the terms of all existing contractor agreements.
Premises & Equipment
Whether the premises are to be leased or are being purchased, it is important to ensure that the premises are fit for the purpose of the business, particularly in regard to local government approvals, structure and floor loadings. It is also important to ascertain the suitability, age and repair requirements of all of the fitness equipment.
Whilst the REIQ Contract provides a warranty that all plant and equipment will be in good working order at settlement, it does not provide a mechanism for testing the accuracy of the warranty.
As the premises and equipment are important to the success of the business, it may be advantageous to have a special condition inserted into the contract to allow the buyer time to have the premises and equipment inspected to ensure they are of the quality needed to conduct the business.
Conclusion
To ensure that a buyer has sufficient opportunity to investigate and be satisfied with the business’ financials, equipment and supply contracts, it is essential that the buyer discusses its individual circumstances with a specialist business lawyer. Without this assistance, a buyer may find their business runs into serious financial trouble soon after settlement.
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Joe Kafrouni, Accredited Specialist in Business Law, Kafrouni Law
Disclaimer: This article is general information only and is not legal advice. Before acting on it, get advice on your own circumstances. To the extent the law allows, Kafrouni Law accepts no liability for any loss arising from reliance on it. This article is the copyright of Kafrouni Law.
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