Legal Considerations When Buying a Petrol Station

Buying a petrol station is a tedious process, and it can be easy to lose track of the legal requirements and obligations. The buyer and the seller each have their own goals that they need to accomplish in the final sale, so it’s important to be informed and protect yourself throughout the course of action.

In this article, we examine four key legal considerations when buying a petrol station.

1. Heads of Agreement
A Head of Agreement establishes the commercial terms for your sale contract. It is non-binding, so neither party is legally obligated to the agreement before the final contract is signed. However, it can be beneficial to have.

The agreement provides the initial framework to negotiate the final sale contract, often including methods for dealing with pre-contractual issues. It is also a good indicator of probable commitment to the deal for each party.

A head of agreement typically covers a range of topics, including:

  • the purchase price;
  • new or existing lease details;
  • due diligence requirements;
  • the settlement date

2. Due Diligence
Conducting thorough due diligence is critical when buying a petrol station to determine if the vendor has been legally compliant while operating.

Your due diligence should include the following research components:

  • determining whether the petrol station equipment is owned outright or on loan;
  • thoroughly searching the premises;
  • reviewing any employment or supply contracts;
  • checking the equipment is in good working order; and
  • reviewing lease documents

Due Diligence on Equipment

To check if any equipment is on loan, search for the Personal Property Security Register (PPSR) model number to ensure that the equipment is sold to you free from encumbrances- a registered claim in a property by a person who is not the property owner.

If the vendor plans on transferring any existing equipment lease or contracts, be aware that the liabilities under those contracts could also be transferred. It is essential to review these contracts before finalising the sale to ensure you, too, can remain compliant.

Due Diligence on Environmental Effects

You should search the Contaminated Land Record governed by the Environmental Protection Authority in your state to see whether the petrol station premises are listed on the register for any previous contamination occurrences on-site.

You should also familiarise yourself with the environmental legislation and check if the petrol station has been operating safely. For example, you will want to ensure that the fuel lines and tanks are in good working order and free of any leaks.

3. Sale of Business Contract
After conducting satisfactory due diligence, it is time to prepare the sale of business agreement, typically contracted by the vendor’s lawyer.

Usually, anything not included in the sale contract will not be a part of your business agreement. If you had a head of agreement in place, be aware that the formal contract will supersede it.

A standard business sale contract will generally include:

  • the purchase price and details about payment;
  • any warranties or promises that the vendor is making to you;
  • what (if any) liability is to pass from the vendor to you and when;
  • details about which contracts are transferring or terminating;
  • whether there is any intellectual property (IP) the vendor needs to transfer;
  • the settlement date; and
  • if there is a lease or franchise agreement, whether the vendor will transfer that agreement to you.

Transfer of Lease

A petrol station lease often covers the entire property, including the underground tanks and petrol pumps. The agreement should also have specific clauses relating to your environmental obligations, specifying:

  • who will be responsible for particular contamination;
  • who will be responsible for remediation works; and
  • what damages (if any) parties are entitled to.

You may also receive a disclosure statement before you get a copy of the lease agreement, depending on:

  • what state you are based in; and
  • whether retail leasing legislation covers your lease.

Transfer of Franchise Agreement

If you’re buying a petrol station from a franchisee, ensure the seller provides you with a disclosure document before receiving the franchise agreement. This document provides you with information about the franchise network’s commercial details and history to help you make an informed purchase decision.

You should also ensure that the

  • franchisor agrees to provide you with the franchise agreement, and
  • the landlord agrees to transfer the lease.

The franchisor will want to evaluate how relevant your skills and attributes are for their franchise before their approval, so it tends to be a lengthy process. Your landlord may request documentation about your business experience, assets, and background. The steps needed to receive consent vary depending on your state or territory, but you will always need to obtain consent before the settlement date.

Tip: The franchise agreement will usually specify that the tanks, pumps, and lines are the franchisor’s responsibility.

4. Environmental Obligations
Once the purchase is complete, you should be mindful of any applicable state-based environmental laws. These laws will impact how you report, test, or manage any remedial work needed for contaminated land.

For help understanding your environmental obligations reach out to us for advice.

Key Takeaways
Buying a petrol station is an intricate process that involves many rules and obligations. Some of these responsibilities will continue after settlement. It is essential that you conduct thorough due diligence and carefully review any contracts before signing any agreements.

If you want guidance through the purchase process or need help reviewing legal agreements, contact us and we provide advice or put you in touch with a solicitor who specialises in contract law for petrol stations.

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