Legal Advice: Sale of Lady Hamilton Hotel - LH Hoteliers Limited

This memorandum of advice addresses the legal procedures involved in the sale of LH Hoteliers Limited, specifically focusing on the sale of the Lady Hamilton Hotel. It outlines key considerations for the vendor, including the importance of a comprehensive asset list, allocation of purchase price, and potential GST implications. The advice covers the drafting and negotiation of the sale agreement, emphasizing the vendor's practitioner's role in ensuring fair terms and protecting the vendor's interests. It also highlights risks associated with tangible assets and the purchaser's rights in case of loss or damage, advising the vendor to maintain possession of intact assets until settlement. The memorandum further underscores the significance of clear title to fixtures and the avoidance of any potential risks to ensure a smooth and equitable transaction for both parties. Desklib provides this and other solved assignments for students.

Memorandum of Advice
To: - LH Hoteliers Limited
From: - Mr. Robert Smith
Date: - 28th February 2019
Relevant Law: - Company Law Act of New Zealand
Facts & Issue: -
LH Hoteliers Limited is a vendor and the shares are owned by Smith (20%) and Ruawai (80%).
As Ruawai is planning to sell the LH Hotel, total purchase price has been decided to be $
800,000 excluding GST. This memorandum of advice is to advise the vendor on the legal
procedures involved in sale and the terms of the agreement for the sale of a business, and the
issues to be considered by the vendor before and after settlement.
Analysis and Suggestions
The practitioner of vendor should obtain a complete list of all tangible as well as intangible
assets under sale, which should be attached to the agreement. Along with it, latest depreciation
schedule of vendor is attached to identify tangible assets and allocate the price to be paid for
individual items. The settlement date is 31st May 2019 at 3 p.m. The agreement for sale of
business is prepared by the vendor. If vendor is planning to sell business as well as freehold title
to the business premises, normal conveyancing procedures should be applied regarding freehold
land and there is no restriction on right of the vendor to sell the fixtures. The form of business
sale agreement should include particular provisions that are generally used in standard real estate
sale agreements along with those otherwise essential for business sale. The vendor can also use a
separate but collateral agreement for sale of real estate.
Terms of agreement for the sale of a business

The standard agreement is used in the sale and purchase of businesses. It could be beneficial if
the contracts for sale of business are in written form according to the Property Law Act 2007.
The role of the practitioner of vendor is significant and for drafting an agreement for sale
includes receiving clear instructions from vendor (REA, 2019). The practitioner should advice
the vendor regarding the legal procedures involved in sale of business. The practitioner should
discuss and advice the vendor regarding any kind of additional terms and variations to the
agreement. The practitioner assesses the level of financial understanding of the vendor if
essential. The vendor is advised to take financial advice from accountant or financial advisor so,
it is suggested that Smith does not have sufficient knowledge regarding finances, to take advice
from accountant or financial advisor. It will ease the process of allocating the purchase price
between goodwill and taxes related to the recovered depreciation. The sale of business and assets
can be zero rated for GST, if the tax treatment are considered.
The vendor should not prepare the agreement until the purchaser is not confirmed, however, it is
prepared in some situations through real estate agent or through brokers. If the parties have not
signed the agreement, the practitioner of vendor has the right to review and amend the draft
prepared through agent after taking the instructions from the vendor or its agent on sale
(Consumer Protection, 2019). The agreement is then provided to the practitioner of purchaser
and after negotiations between both the parties, the amendments are made in the agreement
before finalizing it.
While sending the draft agreement to the practitioner of the purchaser, the practitioner of vendor
should reserve the position of the vendor and should confirm the ability of the vendor to review
and amend the proposed agreement. It should also be ensured that no legal obligations could
occur on the part of vendor until the execution of the contract (Real Estate Authority, 2019).

It is essential that sale of business should be accurately explained in the agreement and it should
specify the assets to be sold to the purchaser in return of the consideration, which is an essential
part of sale of business. The assets of business might comprise of goodwill, equipment,
employees, intellectual property, and right to use business, trade secrets and such others.
The vendor should consider the risks until possession is provided to the purchaser. In case, any
tangible assets are lost, damaged or destroyed during the procedure of possession by the
purchaser, then such loss, damage or destruction cannot be repaired or replaced within the
settlement date, then various provisions can be followed such as, if the purchaser gets influenced
materially due to the loss during the performance of business, then it provides the purchaser to
complete the purchase at the price less than the sum equal to insurance money received or
receivable through or on behalf of vendor regarding loss (The College of Law, 2019). So, the
vendor should ensure possession of intact tangible assets to the purchaser otherwise, loss of
money will be bearable by the vendor themselves.
Similarly, the purchaser gets the right to purchase at the purchasing costs, in case, the insurance
company of the vendor has agreed to reestablish the performance of business to its conditions
prior loss. Additionally, the purchaser can also cancel the agreement by serving notice on vendor
after which, the purchaser will have to return the deposit immediately along with any other
moneys paid to the vendor (Real Estate Agents Authority, 2019). So, the vendor should ensure
fair business otherwise the purchaser has the right to cancel the agreement. Furthermore, the
vendor should ensure sale at the costs less than a sum equal to the amount of decrease in the
value of business, in case the purchaser gets affected materially due to the loss. It will also be
considered as the goodwill on part of the vendor towards purchaser. Above it, if fixtures are
included in the sale process, the vendor must have the title to those fixtures and should pass the

title to the purchaser under the lease so that complete possession can be handed over to the
purchaser.
It is suggested that the vendor should take all these aspects under consideration while entering
into sale agreement of the business with the purchaser. Additionally, any kind of risks should
also be avoided to ensure fair terms and conditions in the contract with the mutual agreement of
both the parties.
References
Consumer Protection. (2019). Contracts and sales agreements. Retrieved from
Consumerprotection.govt.nz:
https://www.consumerprotection.govt.nz/general-help/guide-to-buying-smart/contracts-
and-sales-agreements/
REA. (2019). Understanding the sale and purchase agreement when buying. Retrieved from
Settled.govt.nz:
https://www.settled.govt.nz/buying-a-home/making-an-offer/understanding-the-sale-and-
purchase-agreement-when-buying/
Real Estate Agents Authority. (2019). New Zealand Residential Property Sale and Purchase
Agreement Guide.
Real Estate Authority. (2019). Buying or selling your property? Retrieved from Rea.govt.nz:
https://www.rea.govt.nz/assets/Uploads/Resources/Guides/Sale-and-purchase-agreement-
guide.pdf
The College of Law. (2019). C2 Business dealings. Retrieved from C2business.co.uk:
http://www.c2business.co.uk/