Beware: agency agreements and hidden terms

It is becoming more common to use an agency to sell a business. But beware of T&Cs which can come back to bite you.
 When selling your business you may wish to use a business transfer agent or commercial agent to market and sell the business on your behalf. Before starting to market the business, the agent will normally provide you with its standard terms and conditions for you to sign. We are being asked by a number of our clients who are looking to sell their businesses to review these terms and conditions. Quite often they contain terms which can come back to bite later on down the line.

One thing which can catch out business owners is a term which makes them liable to pay the fees to agent if any buyer is introduced during the period of agency, irrespective of whether the buyer was introduced by the agent or found you another way. This means that if you were approached by a prospective buyer who was not introduced to you by the agent (for example, a buyer introduced to you by your accountant or supplier) then you would be liable to pay the agent its fees if the sale completed to the buyer during any period of sole agency for that agent. So the agent might have had nothing to do with introducing the eventual buyer – the agent may never have even spoken to the buyer – and yet you could still be liable to pay the agent its fees under the agreement.

A business owner should also be wary about the duration of the agency agreement. We have seen terms and conditions which provide for an automatic renewal of the agreement at the end of the initial period unless the business owner specifically gives notice to the agent to terminate the agreement. This can mean that you could be liable to pay the agent if a buyer for the business is found many months down the line and after you had thought that the agent was no longer instructed to market the business.

Unfortunately, a contract between a business owner and an agent is not deemed to be a consumer contract and therefore the protections available for consumers when entering into an “unfair” agreement are not available to a business owner. It is therefore important to take care when using an agent to sell your business and to take advice on the terms and conditions provided to you by the agent before you sign them.

How we can help

In addition to advising you on the terms and conditions, we can negotiate on your behalf to secure amendments to the terms and conditions to ensure that firstly, you only pay the agent if it is the effective introduction of the buyer to the business and secondly, that the agreement runs for a defined period of time without automatic renewal.

The last thing you want to do after selling your business is to find yourself in litigation with the business transfer agent over payment of their fees!

Contact our Dispute Resolution Department for help and advice if you are looking to use an agent or to discuss an existing agency agreements.