Buy now, pay the rest later! Deferred consideration
It is with increasingly regularity that transactions are brokered between buyers, sellers and agents where an element of the purchase price is referred to as “deferred”. In simple terms, this means that part of the purchase price will be paid at a point after the completion date. There can be conditions attached to when that payment will fall due, and how it is calculated.
Why would I want to have deferred consideration?
As a Buyer, the drawback with this is knowing that you will have to pay a certain amount to the Seller in the future. This therefore relies on you not only running the business successfully in order to generate an income to cover this additional payment due, but also could affect you personally depending on the type of security you have given in respect of the deferred consideration.
As a Seller, of course you would likely prefer to have all of the purchase price in one go. That would save the worry that the remainder of the payment wouldn’t arrive. However, by including an element of deferred consideration you may be able to realise a higher sale price.
How do I know that I will be paid the deferred consideration?
At Askews, we have extensive knowledge and experience in drafting appropriate clauses to go into agreements to give both buyer and seller comfort and understanding about how the deferred consideration will work. A key element of this is ensuring that there is some security given in respect of the deferred element of the purchase price. This can be any number of things, ranging from a simple personal guarantee from the purchasing individual or a director of the company, through to a legal charge against a property owned by the purchaser.
The Seller may also include various provisions within the agreement to restrict how the Purchaser can operate the business they are purchasing. This will ensure that, from the Sellers perspective, the Purchaser cannot run the business into the ground to avoid needing to pay the deferred consideration.
The most important element is to ensure that both parties are comfortable, and the terms of the agreement are clear and precise so that there is no dispute as to when the deferred payment falls due.
How can Askews help me?
If you are purchasing or seller a business or shares in your company, and need some advice before committing to a sale or purchase which involves deferred consideration, please do get in touch with our Commercial Team who will be more than happy to provide you with all the advice you need.
