Mistakes Made with Contractual Agreements

Mistakes Made with Contractual Agreements
Most of our colleagues and clients will recall our usual disclaimer ‘we are not solicitors and therefore not providing legal advice’. On that note, the following comments are in keeping with this qualification; we are not providing legal advice.

Over recent months we have received a number of enquiries regarding Contracts; most are for the sale of professional firms. Some practitioners have had some frightening results so a quick rundown on common contract protocol may add value here.

Commonly contracts for sale will be drafted by legal representatives selected by the vendor, and presumably, reviewed by the purchaser. There is a lot to be said about the selection of such advisers and the likely timeframes associated with the preparation of these agreements. To our legal colleagues, perhaps this presents an opportunity for those with experience and an expertise in this area.

In our experience it is wise to leave plenty of time for the preparation, review and negotiation of sale contracts. For the vendors, where possible, have your solicitor commence the drafting of the agreement prior to the acceptance of any offer. Yes, some details will need to be left blank, however if the draft containing the core of the terms and conditions can be reviewed in anticipation of the deal, this will save valuable time. Ideally, select a legal practitioner who will not get carried away with drumming up fees, protecting their territory or who has unrealistic timeframes. Such behaviour can cause the deal to fall over and cost the vendor a lot of money; not to mention frustration for all parties.

Some factors to consider when instructing your legal advisor in the first instance include:

What is actually being sold? Is this goodwill, P & E, WIP & debtors, the name of the firm, telephone & fax numbers, websites and e-mail addresses, postal addresses, systems, and so on?
Where a transition or handover period is occurring, how long is this for and what does this involve or constitute?
What are the payment terms applicable to the price and does interest accrue for any delayed payments?
What is in place to ensure staggered or delayed payments will take place?
If there are any exceptions or exclusions, what do these include in detail?
Where a clawback is part of the transaction, how is this calculated, measured and applied?
Who are the parties to the agreement?
Where the vendor is continuing on as a consultant or similar, what are the bases of such services, what are the expectations, key benchmarks, remuneration, time periods and the like?
Treatment of any outstanding liabilities or prepayments
Responsibility for the premises (where the practice is being relocated) in accordance with the terms of the lease
Treatment and continuity of personnel and their entitlements.
Inclusion of any restraint. This is a particularly contentious issue for a number of reasons. Recent judgments may assist with the selection of valid and enforceable clauses within this area. Many practitioners either believe no such restrictions can exist or agree to terms that are unlikely to be enforceable.
Naturally, for some, such considerations are the norm, but it is best not to presume. Likewise, the above may not cover all aspects for consideration.

Where generalised terms and conditions are agreed to by parties, the resolution of disputes may become particularly difficult, timely and expensive. This is where direction cannot be gained from the agreement and both parties have different interpretations or expectations in respect of such clauses and contractual arrangements. In essence, please don’t presume all parties to the agreement share a similar view or appreciation of the implementation of such conditions.

Spell it out to be sure.