Leased Equipment

The plant and equipment included in the sale of business are often subject to an equipment lease, or similar finance arrangement.

On a sale of business, the use of this equipment can be transferred to the purchaser by paying out the finance company on settlement or by novating or transferring the existing equipment lease.

If the lease is to be novated or transferred, this needs to be covered by careful provisions in the contract, including provisions to the following effect:

• • each of the parties shall take all steps reasonably necessary to obtain the consent of the finance company to such novation or transfer; and
• • if such consent cannot be obtained, or if such consent can only be obtained on unreasonable terms, then:
• • ◦ either party may rescind the purchase and sale agreement; or
• • ◦ if the lease is not a pivotal part of the sale, the vendor is required to pay out the lease, with the purchase price increased accordingly.

If the lease is paid out, the purchaser’s solicitor should ensure that any registration of the finance company’s interest over the plant and equipment is discharged.

Practice Tip: The plant and equipment needs to be precisely specified in the contract. The “good enough” listing in the “big picture” rush to sign up a deal, may not withstand the cooling of ardour of the parties. Both parties need to audit the plant and equipment list at both contract and settlement. If you choose to use templates or example lists, used in other matters, it is important to ensure they are amended to cater for the matter at hand.

See Leased equipment.