Are You Selling Your Business? Be Careful About The Agreement You Sign

When you are selling a business you will probably be asked to sign an agency agreement. This does not differ from the sale of a residential house in that the agency agreement you sign will either be a sole selling rights agreement (where the agent is the only one who can sell your house) or a multi agency agreement (where the agent only receives commission if they sell their house)

A contract with a business agent however differs in many other respects and if you contact three agents you may be asked to agree to completely different terms, the two material aspects being the payment of up front fees and cancellation fees.

Now I consider that it is perfectly legitimate and reasonable to charge both but not on the same contract.

An agent may ask for upfront fees to cover their advertising expenses if they will be embarking on a proactive marketing campaign, or if the client wishes the agent to sell their business at a higher figure that the agents own marketing appraisal.

Alternatively there may be cancellation fees if agents are asked to operate on a multi agency basis or if the seller withdraws their business from the market within an initial period under a sole selling rights agreement.

In my opinion the agreement that the seller should avoid is the one where there is both an upfront fee and a severance/cancellation fee, especially where the agent is operating under a sole selling rights agreement. There are agents such as RTA Business Consultants who operate such an agreement.

With an agreement like this the seller is trapped and the only option they would have is to complain to the OFT that the agreement was unfair under the Unfair Terms in Consumer Contracts Regulations 1999 (The Regulations), or to pay the fees as and when demanded.

It must be noted that the OFT recently ruled that Foxtons Estate Agents operated unfair contracts . They said “businesses offering services need to ensure unexpected or surprising terms are not hidden away in small print. Contracts need to be written in clear and straightforward language with important provisions, particularly those which may disadvantage consumers as in this case, given prominence and actively brought to people’s attention”

A lesson learned by Foxtons and perhaps one soon to be learned by business transfer agents.

This entry was posted on 29/07/2009 at 10:01 am and is filed under Selling Your Business, Business transfer agents. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response or trackback from your own site.