Cardiff Legal

Cloth­ing and design group Tommy Hil­fi­ger is being bought by the owner of Calvin Klein, Philips-​Van Heusen, for $3bn.

Its a tough decision to ‘sell’ and the two examples above high­light the res­ult­ing dif­fer­ences in tim­ing, real­ising a business’s poten­tial and effect­ive plan­ning. Also, get­ting the right help is cru­cial. Many web­sites and agents provide inform­a­tion on busi­ness sale, seek­ing both your sig­na­ture and your cash. The focus of this blog is on some com­mon do’s and dont’s:

1. Plan your ‘Exit Strategy’

The reas­ons to sell are sig­ni­fic­ant: Fin­an­cial dif­fi­culty; Retire­ment; Relo­ca­tion or; Change of life­style. Whatever the reason, plan­ning ahead ensures that you max­im­ise your return. Grow​think​.com has a good Blo­g­post on Exit Strategy.

Key points are “Don’t wait too long to sell” but con­versely “Don’t rush – be patient”. A com­mon mis­take is to sell too late. If the busi­ness is strug­gling, you’re unlikely to real­ise its poten­tial. Equally if you’re too eager to sell, buy­ers will sense des­per­a­tion and reduce their offer. Ima­gine someone try­ing to get a quick sale for their house – the same prin­ciple applies!

We recom­mend fix­ing a date in the future to give your­self enough time to assess all areas of the busi­ness. Then, mon­itor the business’s per­form­ance over this period to obtain a more accur­ate assess­ment of its value.

Con­sider the interests of your stake­hold­ers before selling – i.e. Investors & staff. Some sug­gest not telling staff before­hand for fear of de-​motivating them but we recom­mend all stake­hold­ers are made aware of your plans once the decision is made.

2. Find the right type of Agent for your business

Remem­ber that no-​one knows your busi­ness bet­ter than you. The ‘right’ type of agent should com­pli­ment your type of busi­ness and there are import­ant dif­fer­ences between them.

If your business’s main selling point is a free­hold or long term lease­hold prop­erty, then you may want a prop­erty spe­cial­ist. Savills, Knight­frank and Remax spring to mind – all spe­cial­ise in com­mer­cial prop­erty sale. If its what you do that makes your busi­ness sale­able, a sec­tor spe­cific Agent may be best. They will value your busi­ness accord­ing to your par­tic­u­lar mar­ket. Such agents include:

Christies – Spe­cial­ists in Hotel, Pub­lic House and Retail out­let sale;

Bish­ops – Spe­cial­ists in Care Home sales;

Addis­ons – Spe­cial­ists in Estate Agents and Prop­erty Man­age­ment sales.

Cor­por­ate Sales and Pub­lic Offer­ings (IPO’s) nor­mally require a tailor-​made ser­vice or IPO spe­cial­ist. There are many spe­cial­ist out there and Allipo​.com are just one example.

3. Watch out for unscru­pu­lous agents

There are many Agents claim­ing to be ‘Sale Spe­cial­ists’ but whose inten­tions are to sign you up to a ‘Sole Agency’ con­tract, which some­times includes an “up-​front” fee. Oth­ers may claim to have “hun­dreds of poten­tial buy­ers” on their books to secure your busi­ness. Unscru­pu­lous agents will make attract­ive, and often mis­lead­ing, verbal state­ments that are either not sup­por­ted by the writ­ten con­tract or the real­ity of the market.

Verbal Mis­rep­res­ent­a­tion — i.e. a false prom­ise to induce you into a con­tract — is a com­mon prob­lem. For example, prom­ises about the num­ber of inter­ested buy­ers, fre­quency of view­ings or the pro­spects of a quick sale are often untrue. On the other hand, con­tracts usu­ally con­tain dis­claim­ers, such as:

“The Agency will not be respons­ible for any verbal state­ment made by any mem­ber of staff. Only a spe­cific writ­ten con­firm­a­tion should be relied upon.”

The pur­pose of this dis­claimer is to indem­nify the com­pany from, in the worst case, know­ingly false claims made by sales agents. It goes without say­ing that you should ensure verbal prom­ises are con­firmed in writ­ing. Where false prom­ises lead to a dis­pute, its incred­ibly dif­fi­cult to prove verbal mis­rep­res­ent­a­tion as the state­ment is unlikely to have been recor­ded and, in most cases, will never be con­firmed by the Sales Agent.

4. Are Agents com­ply­ing with the law?: Know your rights

Agency agree­ments can be oner­ous and, at worst, illegal. The main issues are with fees – i.e. set up fees, exit fees and com­mis­sion – and restrict­ive terms, includ­ing “lock-​in” terms. Sole Agency is nor­mal in the industry. This type of agree­ment requires the buyer to pay com­mis­sion on any sale within the fixed term of the agree­ment, regard­less of whether the sale was facil­it­ated by the Agent or not.

Set-​up fees are nor­mally charged for the ini­tial mar­ket­ing and pro­mo­tion of the busi­ness. A com­mis­sion is charged on a sale. Exit fees are pay­able if the seller wants to end the con­tract within the fixed period. Usu­ally the seller will incur a com­mis­sion and either the ini­tial fee or exit fee. Sellers should avoid con­tracts that charge all three types of fees as these are gen­er­ally not value for money and tend to be restrictive.

Here are examples of terms that seek to “lock-​in” the seller:

A recent civil case between Gill Draper and RTA Sales Con­sult­ants, high­lighted on the RTA-​Complaints Blog, is about an unfair agreement.

In the case, the court decided that RTA’s terms were unfair as they did not com­ply with the Unfair Terms in Con­sumer Con­tract Reg­u­la­tions 1999. The reg­u­la­tions say that the seller should be regarded as a con­sumer and that the contract’s terms must not cre­ate a sig­ni­fic­ant imbal­ance between the parties. The “lock-​in” terms of this agree­ment cre­ated a clear imbal­ance in this case.

5. How to com­plain if it goes wrong

There remains some debate as to whether Busi­ness Sale Agents are sub­ject to Estate Agency laws (Estate Agent Act 1979). Those that con­sider them­selves to be tra­di­tional Estate Agents are sub­ject to the Act. The good news for cli­ents is that com­plaints against Estate Agents can be made to the Prop­erty Ombuds­man (TPO).

Com­plaints involving verbal mis­selling or mis­rep­res­ent­a­tion can be repor­ted to your local Trad­ing Stand­ards. Indi­vidual con­trac­tual dis­putes, as in our example above, can be resolved via the civil court system.

Always seek inde­pend­ent pro­fes­sional legal advice if you are in dis­pute with an Agent. It is also a good idea to review con­tract terms and con­di­tions before sign­ing an agree­ment. Con­tact Cardiff Legal for any quer­ies you may have about Busi­ness Sale.

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