Congratulations, you’ve just bought a business. The contract is signed, keys are in hand and you’re eager to get the lights on and start turning a profit.
What you don’t know, however, is that your contract did not include a restraint of trade clause. Two weeks later, the seller opens up shop down the road, stealing all of your clients and staff, leaving you in the red.
Restraint of trade clauses in Queensland play a crucial role in business purchases, aiming to protect the interests of both buyers and sellers post-transaction.
These clauses typically restrict the seller from engaging in competitive activities within a certain time and location.
For a restraint of trade clause to be enforceable it must be reasonable. This is assessed by factors like the scope of restriction, duration and geographic reach, ensuring they do not unfairly hinder the seller’s ability to earn a livelihood while protecting the buyer’s investment.
If a restraint of trade clause is found to be unreasonable, it is very likely that a court will void it altogether, leaving catastrophic and costly consequences.
When drafting or reviewing these clauses, you and the other party should consider specific industry norms, geographical location and local market dynamics.
Sellers may negotiate for narrower restrictions or shorter durations to maintain future career flexibility. Buyers, on the other hand, seek robust protections to safeguard the acquired business’s goodwill and customer base.
By striking a balance between protecting business interests and allowing fair competition, restraint of trade clauses contribute to the stability and integrity of business transactions in Queensland.
The best way to safeguard your business purchase is to seek out legal advice from a trusted commercial lawyer.
Truman McColm, lawyer, MMLaw Commercial, Level 4, 57 The Esplanade, Maroochydore, 5443 1800, mmlaw.com.au
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