PLSC Module 1 Activity 2: Memo on LHH Hotel Sale Settlement Issues

This memo addresses settlement issues arising from the sale of the Lady Hamilton Hotel, focusing on the perspective of the vendor, LH Hoteliers Limited (LHH). It examines the obligations of LHH concerning the lease assignment, referencing the ADLS Agreement for Sale and Purchase of a Business, particularly clauses 8.3, 8.4, and 8.5. The memo also addresses the settlement of assets, specifically the new kitchen fixtures and fittings, considering their classification as stock in trade and referencing clauses 3.5(1), 6.3, and 6.4 of the agreement. Furthermore, it explores LHH's obligations under the agreement concerning vendor warranties and informing the purchaser about notices received, as per clause 6.2. The memo underscores the importance of clear contractual clauses and consent for effective agreement execution.

Module 1 Activity 2

Memo from supervising partner
To Harold Hoover, Partner
From Eli Han, Supervisor
Date 8.3.19
Subject L H Hoteliers Limited: sale of the Lady Hamilton Hotel – settlement issues
Background information
The focus of the memo would be on sales and purchase of a business, considering the way in
which sale of assets is conducted. For this, purpose ADLS Agreement for Sale and Purchase
of a Business (ADLS Agreement) would be used for receiving background knowledge.
Transactions would be looked into from the view-point of the vendor LH Hoteliers Limited,
as well as from the view point of purchasers Todd and Joan Adams, and Marton and Greta
Bognar.
LHH’s obligations in regards to lease
As it is well, settled law that LHH’s being the vendor will have obligation to obtain the
lessor’s consent to assignment of lease in favour of the purchaser.
Since it is earlier informed to the business broker about the lease and also the draft of
agreement of sale of business includes DUE DILIGENCE CONDITION in which it is clearly
marked YES and with condition of within 10 working days after date of this agreement. The
issue so raised need to be settled by the procedure stated in clause 8.3, 8.4 and 8.5 of the
agreement:-
1. We as vendor will provide the copy of lease to the purchaser as soon as all parties to
the agreement sign this agreement of sale.
2. Approval need to be not be unreasonably withheld or delayed and approval totally
depends on the benefit of the purchaser.
3. In case purchaser disapproves the lease the purchaser shall give the notice to the
vendor within the five working days of date of the agreement or date of delivery of
lease agreement to the purchaser. The “purchaser’s notice” need to clarify the reason
to withhold the approval if the reason stated in notice is capable of remedy by the
vendor then same shall be done. In case the purchaser doesn’t provide any notice
about the lease agreement it is deem to be accepted by purchaser.
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4. In case the purchaser provides the notice to vendor then it depends on the vendor to
reply to the notice within 3 days from receiving the purchaser’s notice stating whether
he as vendor can comply with the purchaser’s notice by settlement date.
5. Under clause 8.5, it has been stated that the conditions that has been included in the
agreement for the benefit of the parties involved in the agreement, are needed
completed. This is essential for the fulfilment of the contractual conditions.
In case any party does not fulfil any of condition within the specified time in the contract,
agreement stands to be cancel by providing the notice to the other. On the cancellation of the
agreement the vendor will be liable to pay all the deposits and money received by him from
the purchaser.
The obligation of LHH will establish under Property Act 2007 Section 40. It clearly states
that it is an obligation of purchaser of leasehold estate, unless the agreement provides other
specifications, to consider copy of the receipt of payment of instalment, proceedings
associated with the estate, until the time of settlement. These proceedings include affirmation
about the payment of due by the vendor under the lease. Herein, the purchaser, in this case,
will need to observe all conditions and covenants of the lease. The purchaser, under this
section of the act, will also need to look into the fact, if all rent that are due under superior
lease, sale under sublease, performed. It must observe, whether, conditions and covenants of
superior lease are performed. The purchaser will performed these obligations, in this case. In
case, certain payments are due, the purchaser will address it in order settle.
Settlement of assets
It is noticeable that some money is due for the new kitchen fixtures and fitting. It counts to be
a part of STOCK IN TRADE as defined under STOCK IN TRADE in agreement which
clearly states that any inventory of the business used for the purpose of trade and fitting
which vendor owes is chillers is essential requirement of the business. In this regards, clause
3.5 (1) of the agreement will be referred for resolution of the issue. It states that the vendor
under the contract will deliver to the purchaser tangible assets, business records stock in trade
on the settlement date. However, under clause 6.3 of the agreement it has been stated that for
stock in trade and assets for which vendor warrants and undertakes at the taking of the
possessions and giving is the vendor’s unencumbered property. In this context, under clause
6.4 it is states that vendor warrants and undertakes that is given and taken after possession, it
would be required on the part of the vendor to discharge and pay all debts. In case purchaser
elects not to purchase any excess stock, the vendor holds complete right to dispose-off the
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same. This will not be violation to restrain of trade clause. In this regard, Companies Act
1993 section 313 will be under consideration, which states that under charge, creditors will
be entitlement to the right of claiming payment, to which they are entitled. Hence, in this
case, creditors will claim the money owned for new kitchen fixtures from LHH. In order to
resolve the issue, LHH must clear the dues.
LHH obligation under Agreement
Vendor under clause 6.2 warrants and undertakes to inform the purchaser about the notice so
received by the vendor. Since the work was not consented for which the notice from the
council is issued to vendor, the vendor will clear off the all notices that have arouse as per
clause 6.2(3) of the agreement. It states that the vendor, under this agreement must pass any
demand of requisition, notice or demand to the purchaser, which the vendor receives,
regarding the premises or business. In case purchaser will comply with the notice by the cost
of the vendor before the settlement.
Thus, based on the above made discussion, that clarity of clause in an agreement is essential
for formulation of a valid contract. Essentially, clarity of clauses in an agreement will help in
accomplishing of contractual terms. Apart from that, consent will be needed to be provided
to a terms mentioned in a contract, in order to act upon it.
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