Most Victorian hospitality businesses need to provide two or three disclosure statements when selling. We’re assuming the business comes with a lease. If it doesn’t, that’s two fewer disclosure statements.
Skip down to the bottom of this Small Plate to download a simple checklist to help you stay on top of your disclosure obligations.
Sale of a small business
|What||Form 2 – statement by a vendor of a small business|
|When||Before the purchaser signs anything or obtaining a deposit|
|Why||section 52 of the Estate Agents Act 1980 (Vic)|
|Really why||Purchaser can walk away|
|Why not||If there’s a liquor licence|
If the business is being sold for less than $350,000, the seller needs to provide a sale of a small business disclosure statement.
If it’s not provided, the purchaser can walk away from the contract of sale and any binding heads of agreement.
Great news for the pourers. This particular disclosure statement is not required if a liquor licence is being transferred with the business. It’s not like this reduces the paperwork – there’s still the transfer of liquor licence.
Landlord’s disclosure statement
|What||Schedule 1 – Retail Premises not Located in Retail Shopping Centres or Schedule 2 – retail premises located in Retail Shopping Centres|
|When||Before asking the landlord to transfer the lease|
|Why||section 61(3) of the Retail Leases Act 2003 (Vic)|
|Really why||It’s an offence.|
The seller needs to give the prospective purchaser a copy of the original disclosure statement it received at the start of the lease. Any changes to the information in the disclosure statement need to be explained. Think about the cost of outgoings: they’re likely to change over the years.
The seller needs to give that to the prospective purchaser before asking the landlord whether it will agree to transfer the lease to the new tenant.
Lost the original disclosure statement? Not a huge deal. The seller can ask the landlord to issue a new one. If the landlord doesn’t provide it within 14 days, the seller doesn’t have to give the prospective purchaser this particular disclosure statement. The landlord has also committed an offence.
Don’t want to provide it at all or think about updating it? It’s an offence. Will anyone complain? I’ll leave you to gamble on that one.
Ongoing business disclosure statement
|What||Schedule 4 – Assigned Lease Where Ongoing Business|
|When||Not stated, but presumably before the landlord consents to the transfer of the lease|
|Why||section 61(5A) of the Retail Leases Act 2003 (Vic)|
|Really why||Still liable for the lease after settlement, landlord doesn’t have to give consent to the transfer|
The seller needs to give the prospective purchaser its own disclosure statement. This one is fairly brief, with only eight questions. Five of them should be a doddle. Two are straightforward information gathering.
The first question is:
Has the tenant provided the proposed assignee with business records for the previous 3 years or such shorter period as the tenant has carried on business at the premises?
That first question causes consternation among some sellers, either because it’s extra paperwork to create and send to the prospective purchaser or because the business records don’t necessarily reflect the business.
If the seller doesn’t want to complete the form at all, then despite being released under a transfer of lease (which is otherwise usual), the tenant and any guarantors remain liable under the lease. This also applies if the disclosure statement contains any information which is false, misleading or materially incorrect.
If the seller doesn’t want to complete the form because that would mean providing those three years of business records, there’s another problem.
If the seller doesn’t provide the business records, the landlord is entitled to withhold consent. The landlord finds out that the seller didn’t provide them by reading this disclosure statement and seeing that it says ‘no’. If the seller says ‘yes’, it’s lying – which is something false and misleading.
Stay on top of your obligations with a checklist
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