Realistic Timetables and Expectations

Peter Welsh Law Partnership and Shareholder Agreements

It is not unusual in Corporate or Commercial Law to be engaged by a businessman who wishes to buy or sell his business and to do so as quickly as possible (oftentimes, “strike while the iron is hot”). However, it is equally important that realistic timetables be understood for how quickly transactions can be done for the protection of all parties.

For example, a not atypical situation: a businessman wishes to acquire a franchise operation in leased premises in a retail mall. Both the Purchaser and the Vendor are willing to complete the transaction as quickly as possible. One or the other will be charged with the responsibility to record, by way of a purchase agreement, what the deal is and thereafter proceed with the completion of the intentions of the parties.

Third Parties

However, there are third parties involved in the transaction: the Franchisor and its approval process for a transfer (which is subject to strict requirements of Ontario Law) and the Landlord and its consideration of its new Tenant. Almost invariably, the Purchaser is subject to the requirements of the Franchisor and the Landlord in terms of credit worthiness, application process, consideration of candidacy and the timetable of those third parties to the transaction.

From a critical path perspective to accomplish the closing of the transaction, those third parties have their own timetables, their own requirements, their own assessment of the business transaction and invariably those timetables are not going to be the same as the willing buyer and the willing seller, regardless of the good standing of the direct participants, the buyer and the seller.

What are the Times?

It would not be unusual for a Franchisor to take 4 or more weeks, probably closer to 8 weeks to approve a transfer. Part of that time period is mandated by the franchise legislation which requires any potential franchisee to have received all of the documentation required of a franchisor before anyone can become a franchisee. Under the “Franchise Act”, that is no less than 15 days (sometimes referred to as a “cooling off period”) required to consider the Franchise Documents. In addition, there may well be an assessment made by the Franchisor/Landlord about the premises, equipment, operations and training before a new operator takes over.

Even in those circumstances where there is commonality of interest between the buyer and the seller, the third party procedures will dictate when or if the transaction will close.

A solicitor acting for either side is knowledgeable about these requirements and, while solicitors are not infrequently claimed to be slow or overly cautious, the singular objective of commercial lawyers in these types of transactions is to be sure that, following closing, each party has received exactly what he/she had expected without fallout later.

To accomplish that objective, the client and the lawyer must work hand in glove to be sure that all third parties involved have been adequately informed, early on, provided all necessary documentation, have been fully satisfied with their own business requirements and that at the end of the day, the buyer relationship with the Franchisor and the Landlord will be without issues.

So the Message is Simple

Expectations of a speedy closing may well be under the control of others well beyond the individual client or his solicitor. Realistic expectations about how the transaction will close (and when) must be established at the outset of the transaction. The client should be actively involved in the process throughout including fulfillment of all requirements of the third parties, on time and fully. Otherwise, frustration and disappointment will ensue.

In our office, we work toward establishing a Closing Agenda as the primary guideline document on a business transaction with attention paid to the critical path, the requirements and timetable of the third parties and the instructions of our client. We believe setting realistic timetables and expectations will result in a satisfactory conclusion and the avoidance of sometimes much more difficult or even irresolvable issues arising after closing.

We’d be pleased to consult with you with respect to any of your pending business transactions.

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