Pub Transactions Part I

As featured in the latest edition of Bowler Magazine

We continue to see high interest in pubs in Queensland, particularly from southern buyers who look to Queensland as an opportunity to grow pub businesses. This is notwithstanding the fact that the Queensland pub industry is very sophisticated.

Many clients ask me how they can progress a proposed pub transaction with convenience and ease and minimising expense. Generally, I confirm to them that they should enter into relatively short heads of agreement.

The general principal around binding contracts is that it is possible to create binding relations between parties for a business where there is no interest or estate in land being transferred.

Notwithstanding that, it is obviously the case that a comprehensive business contract is needed to cover off all of the factors around a transaction involving the sale and purchase of a pub business.

Another day, I will go through the major components of a business contract and spell out the basic skeletal requirements to be addressed in a business contract for a pub. I will also look at methodology for these transactions which are generally asset sales, but can also occur by way of a share sale. The contracts are quite different.

In respect to a contract for the freehold attaching to a pub, generally a contract containing all of the agreed terms and conditions and signed by both parties is needed to create binding relations between the parties.

However, we find that another way to proceed with these is to have a simple heads of agreement, but within which in general terms, the provision around exclusivity and confidentiality are binding.

The exclusivity provision is very relevant for both parties in that the parties can proceed with confidence that they are bound to each other for the period of time specified in the exclusivity provision, and this promise of exclusivity can be made binding.

From the seller’s perspective, this means that they have essentially taken the pub business off the market, and in exchange for that, they need to see the buyer take certain steps toward entering into a binding contract. Simultaneously however, the buyer needs to conduct whatever enquiries they are looking to conduct, whether that be a due diligence or other enquiries.

From the buyer’s perspective, they will feel more comfortable spending money with their various advisers, whether they be legal, accounting, financial, valuation or otherwise, and they can use the period of exclusivity to become more comfortable with proceeding in a more robust fashion toward contract and ultimately settlement.

In addition, where there is a due diligence period within the heads of agreement that will generally be consistent with the exclusivity provision, then if the due diligence of the buyer is satisfactory, the ultimate contracts for sale can be less populated with conditions precedent and/or strenuous warranties.

Of course, the warranties contained in any contract will be negotiated, but in general terms, there is an argument that the warranties may be less in number and less robust where either the seller has provided relevant and current information satisfying the buyer about the asset being in good shape, and/or where the buyer has had time during that due diligence period to satisfy themselves about the asset and the fact that it has no problems.

I guess another point to make when selling a pub is to have all of your information ready for the buyer and the buyer’s advisers. Generally, when we represent the buyer, we will deliver a request for information (RFI) to the seller and/or its advisers and where that information is furnished freely and expeditiously shared, then the transaction will be smoother.

These are but a couple of tips about first steps in relation to pubs transactions. There are a number of other matters which I will roll out for you over the next few additions, so stay tuned.

“The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.”
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