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The exchange of contracts is the final and most important step when engaging in a business sale – this is where the deal is officially finalised!
There are a few things you should know about the exchange of contracts, including what happens before and after it.
When it comes to the exchange of contracts, the more familiar you are with the process, the less complicated or overwhelming it can all be.
What Is Involved In A Business Sale?
There’s a lot that goes into a business sale. It’s not really as simple as two parties agreeing to buy or sell from one another.
In reality, the sale can involve inspections, approval from banks, notices and a fair amount of contract negotiations. If the sale involves property, then matters such as fixtures, use of the premise, finances as well as state and federal revenue need to be looked at.
Once both parties are satisfied with their end of the deal, a contract is drawn up, reviewed and signed by both parties.
After this, the exchange of contracts occurs before the parties can part ways.
What Is An Exchange Of Contracts?
As we mentioned, the exchange of contracts is the last step to securing a purchase or a sale, depending on which party you are.
Once a buyer has expressed interest to a seller, they will go through all the usual formalities of a sale.
If both parties are satisfied, they will sign a contract of sale each. Once they have signed the contract, they will then exchange contracts with another thereby completing the purchase.
Contract exchange can occur either in person, via post or through agents. It must be completed in order to make sure the process of the sale has been done in a legally compliant manner.
You might find it odd for both parties to sign the same contract and then exchange it. “Why don’t they just keep the contract they signed?”
This step of exchanging contracts has been put in place as an added security measure. This way, one party cannot tamper with their version of the contract and later make a claim on something the other party had not agreed on.
Can A PartyWithdraw After An Exchange Of Contracts?
It’s possible to have a cooling off period where the buyer is able to change their mind
The cooling off period usually starts after the exchange is completed and lasts for a certain amount of days.. If the buyer changes their mind during the cooling off period, they are allowed to withdraw from the agreement.
The cooling off period is normally there for buyers. Sellers don’t have a cooling off period. Once a seller agrees and signs to sell something, they are bound to perform that obligation.
Generally, cooling off periods are used for property sales however, you can have one negotiated into your contract of sale even if you’re not necessarily purchasing a home.
What Is An Unconditional Exchange Of Contracts?
An unconditional contract is when there are no preconditions that come with the agreement. Normal legal regulations still apply. However, your own conditions cannot be placed here.
For example, in an unconditional exchange of contracts, the buyer usually cannot back out of the contract once it has been exchanged as there’s no preconditions added to the agreement like a cooling off period..
If the cooling off period is something you wish to add or increase in your contractual agreement outside of standard legal regulations, then an unconditional agreement will likely not enable this to happen.
An unconditional exchange of contracts is usually a quick exchange. If you are in a hurry and sure about buying or selling, then you can always opt for an unconditional exchange of contracts.
What Else Should I Know About Business Sales?
If you’re not careful, business sales can be rather tricky. As we noted above, there’s many factors that happen before you can actually receive or hand over your cheque or items.
Whether you are buying or selling, it’s really important to be familiar with any relevant legislation that could impact the sale.
For example, if a buyer is purchasing a property and makes it clear they want to run a small business from their new home, then zoning laws can impact what can and cannot be done on their property.
If the laws don’t permit a certain type of business being run from home, then it’s likely not a good idea to move ahead with the sale.
It’s best to have transparency from both ends so no one feels slighted after the exchange has occurred.
In some cases, withholding vital information can be considered a breach of contract. In this case, you should consult a legal professional to explore your options.
If you’re thinking of not going ahead with a contract, then you can always look into getting a Deed of Termination to record that the contract will not be moving forward.
Need Help With A Lease Agreement?
Instead of buying, you might be thinking of renting a property or renting out an existing property of your own.
Leasing is obviously very different from buying. However, it still requires the same level of transparency and clear communication from both parties for the deal to work.
Leasing also requires having a strong agreement in place. This is particularly relevant when it comes to commercial lease agreements where there is no standard form and the lease can be written to the customisation of the parties involved.
This is usually a great element to have in agreements. However, it can also put some people at risk of entering into contracts that don’t look out for their best needs.
Having a legal expert in your corner that can make sure your lease works to protect you makes a huge difference! Contact us today to know more about how we can help you with Commercial Lease Agreements.
Key Takeaways
The exchange of contracts is one of the most crucial steps to securing a business sale. It’s important to be aware of the legal regulations that surround it. To summarise what we’ve discussed:
- There’s a lot that happens when something is up for sale, including inspections and contractual negotiations
- An exchange of contracts is one of the final stages of a sale, where both the buyer and seller give each other the contracts they have signed
- After the contracts have been exchanged, you can opt to have a a cooling off period where if a buyer wishes to back out of the deal, they can do so
- In an unconditional exchange of contracts, there is typically no cooling off period as well as other conditional factors
- During the sale of a property, it’s important to look at regulations such as zoning laws and be as transparent as possible
- Leasing is another option – we can help you with your commercial lease agreements
If you need help with drafting or reviewing a lease agreement, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
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