Retirement: costs and benefits
Up for sale
14 February 2019
What issues are raised when a retiring surveyor decides to sell their practice?
When you approach retirement as a surveyor, one of the first issues to consider is whether you will simply wind up your practice or whether you may be able to sell it. Many of the issues you need to address will apply in either case, but there are also differences between the 2 situations.
Several of these are quite complex; this feature looks at those you should take into account if you decide to sell, and gives a general indication of important considerations rather than giving detailed guidance.
[B]efore agreeing to sell you will need to decide whether this is worth doing by balancing the benefits [...] against any burdens
Of course, before agreeing to sell you will need to decide whether this is worth doing by balancing the benefits – usually the amount you receive for the sale – against any burdens, such as the impact any ongoing obligations may have on your ability to retire completely. Assuming you have done so, decided to sell and found a buyer, what issues will you then need to address?
Agreeing the terms
As with any major transaction, the process will run much more smoothly if you spend time planning. We suggest that you start doing so at least 6 months before you intend to retire, irrespective of which route you take; there is a lot that you need to do to ensure you cover all the issues.
If you have decided to sell, you will then need to agree the terms. To protect your interests fully, you should retain solicitors to act for you in drafting the sale and purchase agreement, which should cover both what you are selling and any ongoing obligations and liabilities you have.
To protect your interests fully, you should retain solicitors to act for you in drafting the sale and purchase agreement
What exactly you sell will depend on how you are carrying on your practice and, in particular, whether you are doing so:
- as a sole trader;
- through a partnership; or
- through a company.
If it’s either of the first two, then you will be selling the business and assets of the practice. However, if you are practising through a company then you may be selling either its business and assets or the company itself. Each route has advantages and disadvantages, and you may want to take advice on this to work out which is better for you.
For example, if you sell the shares in the company then all the assets and liabilities pass to the buyer with the sale, whereas if you are selling the business and assets but not the shares in the company the buyer can choose which parts of the business it acquires and leave behind any unwanted assets or liabilities. The tax treatment of the proceeds from the sale will be different in either case.
An asset sale may include a transfer to the buyer of various rights the business owns. Where you have agreed to transfer your rights to the buyer under your existing contracts, you will need to check what those contracts say about transfer and comply with any relevant requirements, for example giving notice to or obtaining consent from clients.
[I]f the business has any staff, you will need to think about the steps needed to transfer their employment
Where you have agreed to transfer any intellectual property rights belonging to the business, you will need to take all the steps necessary to do so effectively, including giving any notices and signing the required documents. On the other hand, if you are selling the company and the practice will continue, you will not need to transfer or assign the rights under existing contracts as these will automatically be part of the sale. However, you will need to check whether those contracts impose any restrictions or requirements where there is a change of ownership.
Finally, if the business has any staff, you will need to think about the steps needed to transfer their employment, and what ongoing rights – if any – they will have. In a sale of the business’s assets, employees may transfer automatically to the new owner under legislation, but both the seller and the buyer will need to consider whether the legislation applies and what they need to do to comply well in advance of the sale.
Agreeing a sale price
Obviously, how much the business is being sold for will be one of the main considerations. You may want to think about whether it is worth having the business valued before you agree a sale price. Once this is settled, bear in mind that this upfront price may not be what you end up being paid; the sale and purchase agreement may provide for the purchase price to be adjusted to reflect the amount actually payable for liabilities, which were uncertain or estimated at the time the price was agreed but were an important factor in agreeing the price.
Furthermore, even if there is no adjustment to the purchase price, the sale and purchase agreement may provide for part of the amount to be held back for a specified period following completion. Don’t commit yourself to expenditure elsewhere without being sure you know what you will be paid and when.
The effective date of sale will probably be that on which you receive the amount agreed as the sale price, or at least most of it. However, this may not mean that your involvement is at an end because the sale and purchase agreement is likely to impose ongoing obligations, including requiring you to provide assistance or information to the buyer as they continue to run the business.
You may have a number of such obligations and liabilities, including the following.
- You will usually have to give the buyer various warranties; that is, statements of fact about the business, statements on which they will rely. These are often wide-ranging, covering matters such as the financial position of the business and whether it is facing any actual or potential litigation. The buyer will usually have the right to claim compensation if the statements prove to be untrue.
- You may have to agree to indemnify the buyer against amounts it must pay if specified events occur; for example, any claims for unpaid tax relating to the period in which you owned the business.
- You will often remain liable for claims arising out of work carried out before the effective date of sale. The sale and purchase agreement will usually specify how such liabilities are to be covered and in particular who will insure against them, and this could mean you need to arrange run-off professional indemnity insurance.
- The buyer may require you to help deal with ongoing work, liaise with clients to ensure so far as possible that they remain clients, or sign documents necessary to effect the transfer of the business rights to them.
Although you hope everything will run smoothly once you have sold the business and that you will not need to think about it any further, there are a number of respects in which you may want assistance from the buyer after the sale has completed. These could include provision of documents and information that you or your insurers need in order to defend claims for which you remain liable under the sale and purchase agreement, or which you need for other purposes such as dealing with the tax authorities.
Alexandra Anderson is a partner and Jonathan Angell is a consultant at Reynolds Porter Chamberlain