Caveat Venditor (Let the seller beware)
April 1, 2015
If you have sold, or considered selling a business, did you really understand (or even read) the Authority that you are expected to sign with the Business Broker?
When you are selling your business it is usual to use the services of a Business Broker. You are then asked to sign an Authority (known as an Exclusive Selling Authority). The Authority comprises a number of terms and conditions, but more often than not you are told it is a standard form Authority which everyone signs. Don’t believe it! Talk to us first. Our recent review of such a “standard form” Authority revealed a number of onerous conditions that should be challenged.
Below are some examples of conditions that you might want to take a second look at:
- A provision allowing the Broker to a commission when:
- the business is sold to a buyer that was introduced to the business before the seller signed the Authority. (This is regardless of whether the person was introduced by the Broker or any other person.) or,
- “within a reasonable period” after the termination of the Authority the business is sold to a buyer introduced during the term of the Authority, regardless of who introduced the buyer, or even if the buyer made their own enquiries.
- Sold: means the result of the seller receiving a binding offer. (Comment: This does not have to be an accepted offer, it is also not subject to an acceptable contract, or even if for some reason the buyer cannot settle the sale for any reason – the Broker is still entitled to their commission.)
- Exclusive Authority: the Broker is entitled to their commission if the business is sold. (In the contract that is sitting in front of me at the moment) the buyer is considered to have been introduced to the business by the Broker if they became aware that the business was available by reading any advertisement, whether or not this event takes place before or after the date of this Exclusive Authority, or before, during or after the Exclusive Authority Period.
- Continuing Authority Period: if the business is not sold, the seller is required to give the Broker thirty days’ notice in writing to terminate the Exclusive Authority Period. If this is not provided, the Broker is appointed on a continuing non-exclusive Agency basis. (Comment: What happens if in the period after the Exclusive Authority, another Broker sells the business, but the buyer also “heard’ about the business from the first Broker – is the seller obligated to pay two lots of commission?)
- Charging Clause: some Authorities have sought to bind the seller together with any guarantor for the seller and any Trust which either is the Trustee for, with the obligation to pay the Broker’s commission. Further, all of the above have agreed to give equitable interest in any land which is in their names or the Trust.