Planning to sell your café – get these 3 things sorted now
Business Sale Agreement.
A Business Sale Agreement must clearly set out the legal conditions of the sale. It will be attractive to purchasers to see that your business model is easily transferable to a new owner under favourable legal conditions. It shows your café can continue running smoothly and profitably for that purchaser in today’s competitive café market.
A purchaser will want the Business Sale Agreement to include a Restraint of Trade clause. This is a deed signed by all current directors and shareholders, and prevents you from setting up a related business to the one you are selling within a prescribed area from the current café, for a prescribed time, and is particularly important when the goodwill of the business has been sold. This clause must be reasonable to be enforceable (and the purchaser should know this) so the geographical limits of the restrictions should not cover an area that is larger than necessary to protect the interests of the business, and the length of time the restraint is imposed must also be reasonable.
It will be beneficial for both you and the purchaser if you include sale of equipment in the Business Sale Agreement. If you are planning on opening a new café post-sale, then you may only want to include equipment that is too costly to move or not needed for your new business. Equipment will be an important consideration for the purchaser, and a clear agreement on sale of equipment assures a more efficient handover.
Consider special menu items your café may be famous for and allow the purchaser to continue serving those items to help maintain the customer base post-sale.
Think about it – what would Pope Joan be if it couldn’t serve its Cornish hot roast chicken sandwiches? Or Pelligrini’s without its minestrone? Or Barry without its superfood salad?
This will comfort the purchaser of the café having continued success, and legally you have no ownership or copyright protection over those menu items. Copyright does however protect the special recipes used to make those menu items, so consider if you would like to assign or licence the intellectual property to the purchaser, and if so, include this in your Business Sale Agreement.
Transfer of your Retail Lease.
It is important the premises where your café trades is correctly transferred to the new business owner. If this is not done properly you may still be liable under the lease and personal guarantee. Or, if your landlord does not consent to transfer and has the right to do so, the sale of business cannot continue. Part 7 of the Retail Leases Act 2003 sets out the minimum standards for assigning a lease, and section 61(5A) of that Act applies to assignment of lease for the continuation of an existing business.
When assigning your lease, firstly you must provide a Disclosure Statement to the proposed tenant in the same form as prescribed by the Retail Leases Regulations 2003, and a copy of that Disclosure Statement must also be given to the landlord. A Disclosure Statement is a document that outlines important information and details about the lease so the proposed tenant can understand – at a glance – the key elements of the lease.
The Disclosure Statement may include:
- the term of the lease;
- whether there are options to renew;
- occupancy costs including rent and outgoings; or
- tenant’s fit out requirements; and
- if there are any relocation or demolition clauses.
This Statement must not contain any information that is false, misleading or materially incomplete, otherwise you and any guarantors associated with your lease will still be liable for obligations (such as rent) under the lease, after the assignment.
You must also provide the proposed tenant with your business records from the last three years (or a shorter time if you have not carried on business at that premises for three years). It is a good idea to get these financial documents prepared and ready for inspection in advance of sale.
Once you have your proposed tenant, it is time to request consent from your landlord. This request must be in writing, and you must provide your landlord with requested documents to prove proposed tenant financial stability, and attach the Disclosure Statement. Consent will be deemed accepted by landlord if the landlord has not provided you with written notice that landlord has consented or withheld consent within 28 days of your request. The landlord can legally withhold consent to assignment if:
- Proposed tenant would change the permitted use of premises; or
- Proposed tenant does not have sufficient financial resources or business experience to meet obligations under the lease; or
- You have not complied with reasonable assignment provisions of lease (see above); or
- You have not provided proposed tenant with business records for previous 3 years.
Tie up loose ends – terminate supplier contracts and consider your employees.
Pre-sale, consider your contracts with suppliers and whether there are express terms for termination. Contracts without express termination provisions are usually able to be terminated on reasonable notice. The purchaser of your café may want to continue supply and this may be a favourable option but will also need to be dealt with contractually.
Think about whether you would like to ensure the purchaser will continue to employ your employees, or give them adequate notice of termination. Trained staff are generally an asset to purchasers, however if you are considering opening a new café, you may wish to take some or all employees with you, and this should be considered and included in the Sale of Business agreement.
Once you are ready to sell, you need to cancel your food business licence (the purchaser will need to apply for their own), and train the new owner of the café to ensure your own brand and reputation stays intact.
There will be other requirements, depending on the needs of your individual business. But we’ll get them sorted and help it all come to a happy ending. And then off you go on the next chapter of your business adventure – be sure to give us a call if you need a taste-tester for your next menu!
This is general advice only. Liability limited by a scheme approved under Professional Standards Legislation.
Published Aug 24, 2016
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