Fox Hayes LLP - Business Transfer Company

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Apportionments

The buyer and seller usually agree a total price for the various assets making up the business. How that total is split between the assets can affect the parties’ tax positions. The apportionment is usually agreed between the parties and set out in the sale agreement. Both parties should seek advice from an accountant regarding the apportionment.

Assignment of Contracts

The buyer of the business may want to continue with contracts entered into by the seller, eg with suppliers. Sometimes the buyer and the seller can transfer the benefit of the contract by an assignment. In many cases a novation will be needed.

Authorised Guarantee Agreement

When a lease dated on or after the 1 January 1996 is assigned the landlord may ask the seller to sign an authorised guarantee agreement. The authorised guarantee agreement has the effect of making the outgoing tenant (the seller) guarantee the performance of the lease covenants by his immediate successor (the buyer).

Book Debts

These are the outstanding debtors of the business. This term is used to refer to the sums owed to a business for goods or services supplied or work carried out.

Chancel Repair Search

The history of chancel repair searches dates back prior to 1189 and is linked with the old right of the church to collect tithes from nearby properties. A chancel repair search will reveal whether a certain property is liable to contribute towards repairs at a local parish church.

Charge

The assets of a business can be 'charged' for example to secure monies borrowed from a lender to purchase a property or to secure a business overdraft facility.

Coal Mining Search

This search will reveal if a property has been built on or near an old mine shaft, if there are any licences for future mining and if there has been any subsidence damage notices or claims since 1984.

Commons Registration Search

This search reveals whether it will be possible to obtain planning permission for development over the land and whether an area of land is registered as common land. This affects whether third parties have any rights over the land.

Completion Date

This is the date when the buyer takes over the running of the business and the seller receives the money. In law the ownership of the business passes on the Completion Date.

(See FAQ section for details of how long a typical transaction will take.)

Compromise Agreement

An agreement between an employer and their employee (or more often their former employee) setting out the financial and other terms on which the employment will end or has ended.
The intention is that the compromise agreement will be a final settlement of all claims in connection with the termination of the employment. This avoids either party having to worry about bringing or defending claims in the Courts or Employment Tribunals. If no agreement is reached then these proceedings might be needed to sort out the employee's claims.
To be binding a compromise agreement must contain certain terms and the employee must have independent legal advice before he signs it.

Covenant

An agreement or promise contained in a deed by which a party binds himself to do, or not to do, something.

Deed

A legal document which has to be signed and witnessed.

Deed of Assignment

This transfers the leasehold interest in the property from the seller (the assignor) to the buyer (the assignee). The deed usually contains covenants for each party i.e. for example the buyer agrees to pay the rent and comply with the covenants in the lease and to indemnify the seller against any breach of these.

Deposit

This is the sum paid by the buyer to the seller on exchange of contracts by way of part payment towards the purchase price of the business. Usually a 10% deposit is paid by the buyer to the seller but a lesser sum can be agreed.

Designated Premises Supervisor

The person named in a premises licence as being responsible for the premises on a day-to-day basis.
The designated premises supervisor also acts as the point of contact for the police and other authorities in case there are issues with the sale and supply of alcohol. There is no limit on how many designated premises supervisors can be named on a premises licence provided there is at least one.

Disclosure Letter

A document prepared by the seller's solicitors which sets out any matters that the seller knows do not comply with the warranties contained in the contract. If a seller fails to disclose a relevant matter, in respect of the warranties, he may be sued by the buyer for breach of warranty. A bundle of documents is usually attached to the disclosure letter to support the matters being disclosed.

Environmental Search

This search reveals any problems with flooding or contamination issues and establishes if the land is polluted from any past uses such as a petrol station, sewage farm, brickworks or landfill. The cost of complying with anti contamination legislation is high and it also may be difficult to sell or mortgage the land or gain permission to develop it if the land has contamination issues.

Exchange of Contracts

When the parties have agreed a suitable completion date (if different from exchange of contract date) and are both ready to commit themselves, the lawyers agree to exchange contracts. At that stage both parties are legally committed i.e. the seller must sell and the buyer must buy the business at the agreed price and complete on the agreed date.
The lawyers swap their clients signed sale agreements and the buyer’s lawyer sends a deposit (if required) as part payment towards the purchase price. Normally, in a business transaction exchange of contracts and completion would take place on the same day, but if the parties are keen to commit themselves early on in the transaction they should exchange contracts and agree a later completion date.

Fish and Chip Shop Establishments

For more information about the legal considerations of fish & chip shop establishments.

Goodwill

Goodwill is an intangible asset of the business which represents the good name and reputation of the business. When a business is set up its goodwill is valued at £0. As the business progresses and establishes a name for itself, the goodwill increases in value. As a general rule of thumb, goodwill is valued at the equivalent of one to three times gross profit of a business, but different multipliers are used for different kinds of businesses.

(See FAQ section to find out more about how the buyer can protect goodwill after completion).

Hand-over period

The period after completion for which the seller may agree to assist the buyer with the running and handing over of the business with or without charge.

Intellectual Property Rights / IPR

Intangible property rights which are a result of intellectual effort. Intellectual property rights include patents, trade marks, designs and copyright. If any of these are included within the business transaction, they will need to be formally assigned.

Land Charges Search

This search should be carried out against the name of the buyer just before completion to ensure they are not bankrupt.
If a person is bankrupt, control of their assets passes to their trustee in bankruptcy. This means the bankrupt is not able to transfer ownership of the assets. This search will be a compulsory requirement of any mortgage.

Land Registry

The Government department which holds the national register of most properties in Great Britain.
Details of all property transactions are registered at the Land Registry along with any charges. The registers are constantly updated and open to public inspection.

Land Registry Fee

Each time a property changes hands the transfer documentation must be submitted to the Land Registry so that they can update their records and a fee is charged for this.
The fee depends upon the value of the transaction, but otherwise it is the same throughout the country.

Land Registry Search

A priority search should be carried out against the property just before completion to ensure that no new entries have been recorded against the property since the latest official copies obtained by the buyer's solicitor.
Provided the change of ownership is registered within 30 days of the priority search the buyer will gain title to the property regardless of any changes. The Land Registry charges a fee of £4.00 for this search.

Lease

A deed granting leashold title to an asset.
A lease sets out the terms on which the asset can be used and the cost to the user. Land and buildings are often leased by businesses but other assets can also be leased to businesses rather than being owned.

Liabilities

Debts owed by the business, e.g. outstanding finance, creditors, lease payments or hire purchase. Generally in a business transaction the liabilities are not included and will remain the responsibility of the seller. The seller is responsible for all liabilities up to the date of completion, thereafter, the buyer is responsible. Sometimes, it may be necessary to include some liabilities within the purchase e.g. outstanding finance on equipment which is being transferred to the buyer.

Licence to Assign

Most leases provide that the tenant can assign the lease to a buyer providing they obtain the landlord's consent. The Licence to Assign is the document in which the landlord consents to the lease being assigned from the seller (the assignor) to the buyer (the assignee).

Local Authority Search

This is the most common search which reveals details of any planning charges or restrictions and financial charges affecting the property, together with other information such as whether the nearest road is adopted by the local authority or whether property is in a conservation area. The search will reveal the current authorised use of the land which is necessary to make sure this is not being breached. The search does not reveal information relating to neighbouring property. All mortgages will have a condition requiring an up to date Local Authority Search.

Mortgage/Funding

A loan secured against a property by deed as a form of security for the loan.

Mortgage Deed / Legal Charge: This is the document in which the borrower agrees to secure the funding against the business and/or property. It needs to be signed before the completion date but will not be dated until the completion date to coincide with your purchase of the business.
Mortgage offer / Loan facility offer: A written offer made by a lender to a borrower setting out the terms of the mortgage. This will only be issued when the lender is satisfied that the borrower is creditworthy and the property / business offers good security. There are often conditions imposed by your lender in the offer, which will need to be satisfied before they will release the monies to you. In some cases a loan needs to be supported by a pension or protection policy and in these circumstances we will be obliged to confirm the details to the lender before exchange of contracts and ensure that the policies are brought into effect as soon as contracts are exchanged.

Novation

A three way contract which extinguishes a contract and replaces it with another contract in which a third party takes up the rights and obligations which duplicate those of one of the original parties to the agreement.

Official Copies / Office Copy Entries

Official copies of the records held at the Land Registry detailing all matters which concern a given piece of land.
These will show the property address, owners of the land, any mortgages or other rights or restrictions which may affect the land. Official Copies give a snapshot of the registers on the date which they are ordered and are provided by the Land Registry at a cost of £8.00.

Personal licence

Under the Licensing Act 2003 all premises which sell or supply alcohol must apply for a premises licence and whoever is named as designated premises supervisor must hold a personal licence also.

(See FAQ section to find out more about the new licensing laws).

Plansearch Plus search

The search will reveal neighbouring commercial and residential planning applications made since 1997. The search also includes aerial photography and land use policies. The search will reveal details of existing telecom masts footpaths and rights of way and local neighbourhood information including what the local crime rate is, what the local schools are like (based on national statistics) and where the local conveniences are e.g. the nearest chemist.

Premises licence

Under the Licensing Act 2003 all businesses which serve hot food or drink to the public on or from the premises between 11pm and 5am (such as late night takeaways and cafes) must apply for a premises licence. There is no need to identify a designated premises supervisor if you are not selling alcohol, so a personal licence is also not required.

References

In order for the landlord to consider whether they will consent to the lease being assigned to the purchaser they ask for references. References are commonly required from all or some of the following:

the buyer's current landlord
the buyer's bank
the buyer's employer
a person or company with whom the buyer regularly trades
3 years audited accounts in the case of a company or self employed person

Rent Deposit

The landlord may in addition to references ask the buyer to provide a rent deposit. This is a sum of money which the landlords will retain for the duration of the buyer's tenancy of the premises. If the rent or any monies are owed from the buyer the landlord will be able to use the monies held in the rent deposit to pay for these. If at the end of the tenancy no monies are outstanding and the premises are in good repair the rent deposit will be repaid to the buyer.

Restrictive Covenant

An obligation created by a deed that restricts the rights of an owner of land, e.g. a covenant not to use the land for purposes of any business.

Sale Agreement

This is the main document that sets out the terms of the sale and purchase of a business.

Stamp Duty Land Tax (SDLT)

This is the tax payable on certain transactions involving the transfer of an interest in land.

(See FAQ section to find out more about how SDLT is calculated and when it is payable).

Title

A person's right of ownership of a property. Someone with a good title has adequate evidence to establish his right of ownership.

Title Deeds

The title deeds have two primary functions:-

They prove ownership of the property; and
They set out details of the property, such as restrictions imposed on it and rights and obligations affecting it.

If you have a mortgage, the title deeds will be held by the bank or building society concerned (the lender). Some lenders charge a fee for sending the title deeds out, but this is usually added to your mortgage account. In many cases there will be no physical title deeds and office copy entries can be used instead.

Transfer as a going concern

If the sale of the business qualifies as a transfer as a going concern, no VAT will be charged or payable.

(See FAQ section to find out if your transaction qualifies).

TUPE

The Transfer of Undertakings (Protection of Employment) Regulations 2006.