Contract Chaos – Common Experiences Around Transaction Time
Future vendors and purchasers beware.
The sale or acquisition of a practice is not easy, with many pitfalls and occurrences that are likely to be unfamiliar to a party conducting this type of activity for the first or second time. Please don’t underestimate the stress such negotiations can cause, which is why it is immensely beneficial to have someone by your side representing your interests and providing expert advice when so required.
As part of the transaction process, solicitors/lawyers will no doubt become involved when it comes to the contract. Yes, in some States there is a standard template contract that can be used. However, these documents are typically not well suited to professional firms and by the time all the non-relevant sections are omitted and the solicitor has added an equal number of special conditions directly pertaining to the practice, it may, on occasion be worthwhile starting from scratch in the first instance.
The second factor to consider in relation to these standard contracts used for sale, is that once any of the terms and conditions are varied, this may impact upon the validity of the whole document. Unless your broker or advisor is also a licensed legal practitioner, they are not really in a position to be providing advice pertinent to such documentation.
When it comes to selecting a solicitor to take care of the contract for sale, we recommend that you endeavour to find someone that can meet your requirements in a timely manner, who has a practical outlook on the law and who has had experience preparing contracts for sale for professional firms. Having solicitors who just want to butt heads about who knows more about the law is far from helpful.
The contract phase of a transaction can often be the most confronting and difficult, frequently resulting in either one or both parties questioning their will and desire to continue. For this very reason we like to get this aspect of the process squared away prior to the purchaser performing due diligence. However, one extremely valuable point to remember, discontinuing with the sale only delays the inevitable when it comes to obtaining an outcome. Whether a transaction is done now, and you grit your way through the process today, or you pull out and go again in six or twelve months time, the difficulties associated with reaching agreement around contractual terms will remain.
Avoiding the Chaos
So, following are some suggestions to assist with avoiding chaos when it comes to contract time:
find an experienced, practical lawyer/solicitor.
draft/review the contract in a timely manner. Where there are delays, keep the other party informed regarding progress.
ensure that where the draft includes consultancy agreements and the like, these are included early on in the process. However initially, details about clients or staff should not be included.
the buyer or seller is utilising the skills of a lawyer for their expertise, for our benefit and protection. However, at times, with due regard to the advice, instruction to proceed may be required to ensure a deal is done.
ensure the draft contract includes all aspects agreed to between the parties during the initial offer and acceptance stage.
understand that a draft contract provided from one party to the other will always come back with some requested amendments. We have never seen the initial draft contract for sale accepted by the recipient on the first pass.
on almost all occasions, the recipient’s solicitor will request a word copy of the document so proposed changes can be easily marked up and tracked. This makes the process easier.
if requested changes are generally insignificant, fine. However, forewarning may be worthwhile where significant amendments are expected.
don’t sweat the small stuff; if a clause is included that seems insignificant or that your solicitor disagrees with, but fundamentally has little impact or risk to you, letting a deal fall over because of such details seems a real pity.
appreciate that compromise is a necessity to getting the deal done.
there is no outcome without a contract; acknowledge and accept that achieving a transaction will require this step in all instances.
We know of so many deals that near fall over at contract time, and despite all the frustration and accusations around the incompetence of the other party’s solicitor, and their lack of willingness to negotiate, harmony and happiness is eventually returned by the time settlement or completion takes place.
Please don’t let the chaos around contracts ruin what will otherwise be a successful transaction.