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We work closely with our colleagues in other departments on transactions which involve a property element. Property aspects of share and business sales can sometimes get forgotten in the larger corporate setting but can have a big impact on the day to day running of the business, as well as on its value.
We are there to investigate and understand what the risks are, how best to mitigate these, ensure property is fit for purpose and does give risk to unexpected large bills. Through due diligence and negotiating warranties and indemnities in the corporate documents, we can advise you what issues there may be and which should be factored into the purchase price, as well as ensuring you have suitable protection in the documents.
Buyers who have not done their full property due diligence can often be caught out by large dilapidations costs, property repair bills or environmental claims that they had not been prepared for. These can sometimes outstrip the value of the underlying corporate transaction and need very careful consideration before it is too late.
A contract does not need to be written to be enforceable (except in certain situations eg transfer of land or assignments of IP), though it helps to have the precise terms in writing so that each party is aware of their obligations.
In order for a contract to be valid, it must have the following elements:
1. Offer - This is a statement of terms by which the offeror agrees to be contractually bound
2. Acceptance - The offer must be accepted, and acceptance of an offer must be unconditional
3. Consideration - Each party must exchange something of ‘value’ for a contract to valid. The consideration doesn’t have to be equal, but a contract will not be valid without some consideration.
4. Intention to create legal relations – It must be clear that the parties intend to create legal relations and are aware of their obligations
5. Certainty of terms - In order for a contract to be binding, all material terms must be agreed. If the agreement is uncertain, a court may not be able to enforce it
The terms of a contract can have differing statuses. Conditions are the most important terms of the contract. A breach of a condition will entitle a party to terminate the contract and claim damages whereas a breach of a warranty will only entitle a party to claim damages.
The contract may set out whether the term is a condition or warranty, or it may be designated in statute (eg Sale of Goods Act 1979). If there is no express classification in the contract or statute, the court will consider the nature of the contract, its subject matter and the surrounding circumstances in determining whether the term is a condition or warranty.
It is also possible to imply terms into a contract, in addition to the terms which are expressly stated. Terms can be implied on the basis of usage or custom, previous course of dealings, the intention of the parties, common law, statute and to give business efficacy. You cannot imply a term if it directly contradicts an express term.
Any loss that is suffered must be a direct consequence of the breach of contract and have been reasonably foreseeable by both parties at the time the contract was entered into.
Find out how our contract lawyers can help with contractual disputes.
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