As the lawyer to Melbourne Coffee Review I frequently act for buyers and sellers of cafes. I love coffee with a passion and even ran my own cafe business for a while, you could say I am a barista barrister! I have decided to write this short blog post to make aspiring cafe owners aware of some legal issues when purchasing their dream business. In particular many clients come to me after they have already signed the sale and purchase contract and at times there are some difficulties with what they have agreed to.
Tip 1: Get the Contract Reviewed Before Signing It
Preferably, don’t sign the Sale of Business Contract unless your lawyer has reviewed it – I would say that wouldn’t I? The time to negotiate terms, clauses and special conditions is before the contract has been signed. I am often able to assist buyers in negotiating better terms, there is more to buying a business then just the price! At times my review can prevent a client from stepping onto a potential landmine, because I deal with cafes a lot, sometimes I can immediately advise you on any potential risks or pitfalls. If you want to sign in a hurry, you can always fax me the contract and I will advise you on the phone once I have read the documents.
Tip 2: Study the Vendor’s Statement and Check Takings
It is important for you to study the Vendor’s Statement known as the Section 52 Statement under the Estate Agents Act 1980 (Vic). This statement will provide you with financial information about the business and if the current owners have only traded for a very short time you also have the right to see the statement provided to them when they bought the business. In addition to the financial information in the statement, you may also wish to verify the weekly takings of the business yourself and I can provide for this to happen in the Sale of Business contract. You may wish to seek advice from your accountant or financial advisor or from other experienced cafe owners as to what the sale price should be for that particular business. Dealing with cafes regularly I can offer you my own opinion on the purchase price and the business itself if you ask me but I would need to review all the documents and perhaps even visit the site.
Tip 3: Use the Right Business Structure and Register for GST
Your accountant or lawyer will also assist you in setting up an appropriate business structure and tax registration. A common clause of the Sale of Business contract is that you are GST-registered at the time you sign the contract and at settlement/completion, you need to ensure that this is the case. 99% of cafes are sold on a “going concern” basis which means GST is not payable on the purchase price however you need to make sure you are GST-registered.
Tip 4: You Need the Right Lease
Perhaps the most important aspect of a retail business such as a cafe is location, location, location. It is important for me to review your proposed lease to ensure that you will have enough time left at the place to reap a return on your investment and to make sure there are no deficiencies in the lease or lease transfer documents. It is also important to be fully informed of any costs additional to the rent that will be payable. This is where a review of the disclosure statement is important. The lease also needs to comply with the Retail Leases Act 2003 (Vic). Vendors should be aware that it is illegal for the landlord to demand any “key money” or “goodwill payments” to assign the lease to the purchaser and any money so paid is recoverable from the landlord even after the fact.
Tip 5: Arrange to Transfer Statutory Licenses
Arrangements will need to be made for the transfer of licenses such as under the Food Act 1984 (Vic). It is important to organise a pre-purchase Food Registration inspection to make sure there are no major issues for the vendor to remedy before you take over. You will also need to arrange a transfer of the liquor license under the Liquor Control Reform Act 1998 (Vic). It is important to remember that transferring a liquor license takes time and you cannot “trade under” the vendor’s liquor license. You may also be required to undertake training to understand the liquor licensing laws.
Tip 6: Avoid Buying Liabilities or Encumbered Assets
When preparing for settlement, I as your lawyer also need to ensure that you will receive all the assets of the business free from any encumberances and that you do not unwittingly purchase any debts, liabilities or obligations that you were not aware of.
Tip 7: Intellectual Property Matters!
I also need to check the intellectual property rights associated with the business name to make sure you will have the right to use it after settlement and to ensure that you do not infringe on anybody’s trademarks, etc. If you are planning to re-brand, I will need to arrange for the protection of your unique and exciting new cafe or coffee brand!
The above 7 points are really just the basics and a starting point to get you thinking about some of the legal issues in purchasing the business. You will already have plenty on your plate thinking about the operation of the cafe, food, coffee, staff, menu, opening times, suppliers, branding, etc. – so perhaps you really should just give us a call on 1300 918 788 and let me handle all the legal stuff for you!
About the Author
Bart Janowski is the lawyer exclusively engaged by Melbourne Coffee Review and frequently acts for both buyers and sellers of cafes, bars and restaurants. He is the Principal of Goshawk Law and a Member of the Law Institute of Victoria. Bart is admitted to practice law in Victoria and all federal jurisdiction of Australia as well as New Zealand. He is a Fellow of the Taxation Institute of Victoria.
Tags: cafe, coffee, Melbourne Coffee Review, purchase of business
