Welcome updates to the ADLS Agreement for Sale and Purchase of a Business

Earlier this week the Auckland District Law Society updated its Agreement for Sale and Purchase of a Business.

While the primary driver for the update was to clarify the GST requirements for business sales, other areas were tidied up as well.

The following is a short (and non-exhaustive) list of the changes:

• A new right for purchasers to inspect the business prior to settlement – the purchaser can now, during the period between the agreement going unconditional and the settlement date, inspect the business on one occasion with reasonable notice.
• A new, standard, ‘due diligence’ condition – if elected by the purchaser, the agreement can be conditional on the purchaser’s satisfaction of a due diligence investigation. The purchaser will also have the right to investigate and examine the business’ records, premises and staff, subject to the vendor’s reasonable conditions.
• Option to add covenantors and guarantors as signing parties – this can provide the parties with additional avenues of redress where the other party defaults as it personally ties in people like directors and/or shareholders.
• Improved restraint of trade wording, including restraint period and restraint area definitions – for example, the restraint of trade can now bind not only the vendor (which is usually a company) but also the ‘covenantors’, who will usually be the vendor’s director(s) and/or shareholder(s) in their personal capacity.
• Clarification on ‘settlement statement’ requirements – for example, the settlement statement must include a credit for any deposit paid by the purchaser and the apportionment of incomings and outgoings (if any).
• Clarification on the assignment of lease conditions and obligations – for example, obligations for preparing and executing the deed of assignment of lease are no longer treated as being part of the ‘landlord’s consent’ condition, but as a general contractual obligation.
• Clarification on the mechanics of settlement and possession – for example, the agreement makes it clear that possession can only be given and taken on completion of the settlement requirements.
• A new ‘expert determination’ mechanism for disputes – for example, where the parties cannot resolve a dispute themselves, then an expert must be either agreed by the parties or appointed by the Auckland District Law Society to fully and finally determine the dispute.
• Clarification of GST provisions – for example, the agreement now assumes a business will be sold as a ‘going concern’ and the transaction will be zero rated for GST.

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