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Asset Acquisition – Common Assets Transferred and Related Warranties in the SPA (Part 1)

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An asset acquisition differs from a share acquisition as the buyer agrees to purchase a collection of assets from the seller.

This collection will depend upon the negotiations between the two parties involved and their commercial objectives.

In the circumstances under which the buyer will want to continue to run the target business, then the buyer will need to acquire all the necessary assets and the crucial trading contracts, which should remain in place even after the acquisition process.

In this blog we will analyse the most common assets that are transferred, specific factors relating to the transfer of each asset and the warranties that are required by the buyer.

1. Land and premises

Any freehold and leasehold that will be transferred will be listed in the Sale and Purchase Agreement (SPA). The buyer will need to assume the risk on the premises as from exchange of the agreement but the premises will then be transferred on completion. In the case of a lease that  requires consent to assign from the landlord, this will need to be requested as soon as possible. Under section 19 of the Landlord and Tenant Act 1927 consent cannot be unreasonably withheld.

The buyer will include in the SPA warranties on the physical state of the building and on any relevant environmental matters. In the case when a licence is not ready by completion date, then the contract will be all conditional on obtaining the consent of the landlord.

2. Plant, vehicles and machinery

A schedule with the items that will pass at completion will be included in the SPA. The buyer should specify that the plant and machinery “used in the business” will pass, so that items mistakenly omitted in the schedule will be included anyway in the sale.

The transfer of plant and machinery does not have a specific process, but on delivery at completion they will pass under the ownership of the buyer.

The buyer will want to include warranties regarding the condition of the items. This will include the state of repair, their working condition, whether they need to be replaced, whether they have been regularly and properly maintained and whether they are adequate for the needs of the business.

3. IP Rights

Trademarks, service marks, registered designs, copyrights and patents which are included in the acquisition are also listed in a schedule within the SPA. The transfer of these rights will be made through assignment of the licences with the transfer of the title at completion.

As in the transfer of plant and machinery, the buyer should specify that all the “IP rights used in the business” should be transferred, avoiding the possibility of mistakes.

The warranties that will be required by the buyer will include whether the seller is the beneficial owner or registered proprietor of the IP rights including whether to the best knowledge of the seller they are valid and enforceable.

The seller will need to assure the buyer that the operation of the business does not infringe IP rights of other individuals and that the seller has not given any other person rights that will be able to infringe the IP rights.

4. Leasing, hire-purchase and finance contracts

In the situation in which the seller is using equipment that is subject to hire-purchase, the true owner of the equipment will need to give consent to transfer the hiring contract. This is because the seller is not the owner of the items and so does not have the right to transfer the contract.

The true owner will be able to assign the contract or enter into a novation agreement with the buyer or enter into a new agreement with the buyer.

In the case that these arrangements are not in place for completion, then the buyer will be able to use the equipment on the basis that they are discharging the obligation under the contract on behalf of the seller until the new agreement is in place.

Warranties regarding these items will not be included in the SPA as the seller is not the legal owner of the equipment and cannot guarantee the state of the items.