Selling up? Don’t double your trouble
Penny Garden from our corporate team explains what to watch out for if you are selling a business or house and decide to change your corporate finance adviser or estate agent.
Looking for a speedy sale
So you’re looking to sell your business or your house.
You approach a corporate finance adviser or an estate agent with high hopes of a quick sale. After all, they have the expertise and the connections to make it happen. You formally instruct them, sign up to their terms of engagement and wait for the potential purchasers to come flooding in. At least that’s what you hope.
A change of tack
Unfortunately, things don’t go as smoothly as you had hoped and the weeks begin to pass. Weeks become months and not even a sniff from a serious purchaser. Nothing more than a few enquiries. You don’t feel you are getting anywhere, decide you have had enough and stop using the adviser or agent’s services.
A few months down the line, having taken stock and re-evaluated your position, you decide to take on the market again and give it another go. You remarket with a different corporate finance adviser or estate agent and soon receive a positive approach from a promising buyer which leads to a successful sale.
How would you now feel if you received a claim from your original adviser or agent for a success fee following the sale? You might think that sounds ridiculous – after all, they had nothing to do with the ultimate sale. Well, following a case in the High Court in 2010 concerning the sale of Birmingham City Football Club, that doesn’t necessarily matter.
Double fees anyone?
The court won’t look at how fair it is on you that a chunk of your sale proceeds are effectively handed over to a third party who had little or nothing to do with the successful sale. They will look at the cold hard facts of the contract.
If there is a clearly drafted clause dictating that your adviser or agent is entitled to a success fee on a successful sale or (as most do) within a certain time after the contract is terminated, then the court may have no option but to uphold the contractual term. Most estate agents and corporate finance advisers’ contracts include provisions entitling them to success fees for a period (sometimes 12 months) post formal termination of the contract. If the contract is not formally terminated the adviser’s right to fees could continue indefinitely. In the Birmingham City case, the corporate finance advisers were entitled to be paid a success fee notwithstanding that they had no involvement in the eventual sale.
Don’t get caught out
If you are looking to sell your house or your business in the not-too-distant future it is vital to ensure that:
- your contract is formally terminated should you part company with your corporate finance adviser or estate agent;
- you check and make sure you are happy with the terms governing the payment of any success fees (especially post-termination); and
- you take legal advice to try to negotiate and limit the scope of any express terms you are not happy with.