Insolvency purchases can come with extra expenses

Breen Purcell examines the extra expense that can come with insolvency property purchases. Article published in the Irish Independent, 18th April 2013. For some people the receivership sale of a business or commercial property may signal an opportunity to buy a business at a very keen price. However there can be hidden costs involved when buying such businesses and these need to be checked out carefully in advance so that buyers can have a more accurate assessment of what they are buying as well as the conditions of the sale in case they may come back to bite them. Breen Purcell partner of McDowell Purcell Solicitors points out that in some cases the receiver and the solicitors engaged in the sale will have a limited knowledge of the property as the borrower upon whose mortgage the receiver has been appointed may not be forthcoming with all of the information that would normally pass between a vendor and agent. This particular problem can be covered off by inserting special conditions into the contract for sale i.e. that the vendor/receiver is only in a position to stand over what he knows about. However such contract conditions do not overcome other concerns such as VAT and the costs associated with employees. Consequently both vendors and purchasers may need to allow extra time and costs to carry out due diligence on the history of the property or business. Mr Purcell points out that information regarding VAT history is difficult and sometimes impossible to obtain especially if the original owner may have left the country. “We found other difficulties with the sale of investment properties where there are no leases held with the title documents and it has been necessary to ask the tenant’s solicitors for details of the leases and ascertain the VAT position”. Planning/development history Whilst most receiver contracts for sale protect the receiver in respect of planning matters, it would be necessary to check that any such development did not give rise to a subsequent VAT liability either for the receiver/vendor or the purchaser. Employees may also have entitlements arising from the transfer of a business and these could also add to the costs for the vendor or purchaser. Such entitlements arise from the EC (Protection of Employees on Transfer of Undertakings Regulations) 2003 commonly referred to as TUPE where the sale of the business constitutes a “relevant transfer”. If there is a “relevant transfer”, some or all employees of the transferor are entitled to transfer to the employment of the transferee under the same terms and conditions of employment which the employees enjoyed before the transfer, subject to an important exception on pensions. In order to constitute a “relevant transfer” there must be a transfer of an economic entity which retains its identity after the transfer. A transfer under the regulations normally arises in the course of a sale of a business, including a sale by a receiver where the business is being sold as a going concern, from one party to another. However, the regulations also provide that a “relevant transfer” can include the assignment or the forfeiture of a lease. Therefore, the regulations may also apply where, for example a receiver appointed over a hotel, the running of which is operated by a third party under a lease, terminates the lease and transfers it to a new tenant. According to Julie O’Neill, an employment lawyer with McDowell Purcell, “The receiver and the purchaser may not always be in agreement as to whether the regulations apply to the sale and the purchaser will often refuse to take over the workforce in which case the receiver will have little choice but to make the employees redundant, leaving itself open to claims under the regulations.” Receivers can endeavour to protect themselves by inserting a clause in the sale agreement or lease which would indemnify them against any legal costs incurred by the receiver in defending any claims including those from employees. Another issue may arise where the purchaser reluctantly agrees to take over the workforce but insists that the purchase price is reduced to take account of the fact that the he or she will be required to take over the workforce on their existing terms, and often on more favourable terms than the purchaser’s existing workforce. Breen Purcell specialises in property secured finance on behalf of a number of leading commercial lending institutions. Breen also has extensive experience in the sale, purchase, acquisition and disposal of commercial and residential property.