With company profits falling, the mining boom a distant memory and a slowing China, expectations are that Australia is in for a period of sluggish growth. Many companies are responding to the conditions by divesting themselves of non-core or non-performing assets in an effort to cut costs.
Selling property assets is complex and some important aspects are often overlooked. In particular, we've found six issues that sellers should stay alert to when disposing of property:
1. Third party consents – start the conversation early
Third party consents are a usual requirement for most asset sale agreements. However, obtaining consent is rarely straightforward.
While it's common to have provisions that prevent consent being unreasonably withheld, the reality is they do little to prevent a third party holding up completion.
Third parties can sometimes make the grant of their consent highly conditional.
For example, third parties often request the execution of consent deeds (ensuring contractual relations exist between all parties) and the provision of parent company guarantees.
Whether reasonable or not, sellers may have to comply with such conditions, which can expose the seller to a higher risk profile or jeopardise completion.
Engaging early with the consenting party will not eliminate their requirements but it will give you more time to negotiate. You will have a better chance to ensure any truly unreasonable requirements are waived and completion is not delayed due to an outstanding consent.
2. Ensure a clean release from obligations
No one wants to be held responsible for something they can't control, especially where responsibility goes hand in hand with liability.
While obtaining consents to the assignment of agreements is a hurdle in itself, getting a release from existing obligations following an assignment is a whole new ball game.
As with consents, early discussion with both the buyer and the remaining third party is essential. Third parties have little incentive to release an outgoing party (unless required under the signed agreement).
Where a release is not forthcoming, an alternative for the seller is to negotiate a guarantee from the buyer to mitigate the risk retained by the seller. A buyer may be willing to provide guarantees in order to complete the deal.
3. Which assets are mine?
Identify early which assets (be it land, fixtures or chattels) are being transferred and what rights each party will have over the assets post completion.
It's not always a simple process, especially where there is overlapping tenure or where assets are so closely connected that the parties require rights of access over the other party's land post completion.
Your transaction documents must include a clear description of operations post completion as well as what access rights will be required over adjoining land.
Candid tripartite discussions from the outset of a transaction are crucial, especially when engaging surveyors. The worst case scenario is when the seller unknowingly disposes of rights it requires to continue operating and the buyer discovers post completion that they lack the rights to access their newly acquired assets.
4. Dealing with government departments
Your transaction may require the consent of a Minister, particularly if the transferring rights constitute State-owned land.
Ministerial consents can take time and it's advisable to approach the relevant government department early in the process. Ideally, you should have a form of in-principle approval from the government department (or at least be in pre-lodgement discussions) prior to finalising and executing the transaction documents.
5. Amendments between execution and completion
In large-scale transactions, execution and completion will generally not occur simultaneously, especially when there are a number of conditions that need to be satisfied.
When execution occurs prior to completion, ensure that allowances are made within the documents for amendments both prior to and post-completion.
Whether it is the replacement of schedules or annexures to a document or the inclusion of additional provisions, the parties should agree on the process from the outset. This is the best way to avoid delays and tension between parties.
6. Don't open the champagne too early
While the bubbles will flow as soon as the funds have been transferred and completion is effected, buyers especially should not become lax until the documents requiring registration are noted on the title.
Registration should be straightforward. But it's not always the case when there are multiple documents and survey plans to be registered, and which require Ministerial consent.
With the Land Registry requirements aside, ensuring that all documents are lodged in the correct order and do not refer to unregistered plans or documents yet to receive Ministerial consent, requires attention to detail as well as good communication with the surveyor(s).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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