Change to Agreement for Sale and Purchase of a Business
The standard Agreement for Sale and Purchase of a Business form approved by the Real Estate Institute of New Zealand Incorporated and by Auckland District Law Society Incorporated (“the agreement”) has recently been revised.
One of the revisions to the agreement’s latest edition is the removal of the schedule recording the GST status and intentions of the parties. The rationale for the deletion is to address the confusion in completing the questions in the schedule. A sale of a business is generally a sale of a going-concern that is zero rated. Also, it is not usually the case that a purchaser of a business intends to use the land as its principal residence.
Therefore, the revised agreement provides that the purchaser will not be using any part of the land as its principal residence. If that statement of fact is incorrect and the sale of the business also involves residential land, then legal and tax advice should be sought before signing such an agreement.
Other noteworthy changes to the agreement include:
- the vendor and purchaser are to insert their respective GST numbers on the front page of the agreement
- the covenantors for the vendor and guarantors for the purchaser are added as signing parties
- new due diligence clauses
- a detailed process for an assignment of a lease
- a list of further requirements for settlement
- restraint of trade clauses; and
- an expert determination clause for disputes.
The revised agreement provides a sound base for a straightforward sale of a business as a going-concern to two registered parties. However, if there is any deviation, that the agreement will need to be amended and further clauses added.
Problems frequently arise over the application of GST to a transaction. Minor changes (for example, a last-minute nomination) may result in different tax outcomes under the agreement. Therefore, professional legal and tax advice should be sought at the earliest opportunity before entering into such an agreement.
Source: InBrief Spring 2017