Anonymous, Essex

Whether you are growing your business and expanding into new markets, you don’t have to take big risks to achieve growth and protect your interests.

We have found that one of the most effective ways to do this is by putting a distribution agreement in place.

Our Supervising Department Director of the Company Commercial department, Matthew Johnson, explains when you might require a distribution agreement and what type might best suit you.

What is a distribution agreement?

A distribution agreement is a legally binding contract between a supplier, such as a manufacturer or brand owner, and a distributor.

This agreement allows the distributor to purchase goods and resell them within a defined territory or market.

It is not to be confused with an agency agreement where an agent sells on your behalf.

Instead, a distributor will take ownership of the goods and sell directly to customers.

Distribution agreements can come in handy when you are looking to expand your business into markets where you have little to no presence.

Sometimes they can give you the key that opens the door to local knowledge and networks without having to establish your own operations.

Why do I need this agreement?

You might feel that a handshake agreement or informal arrangement is sufficient at first glance, especially if you trust the other party.

However, the lack of a formal agreement could leave room for misunderstandings to arise.

A distribution agreement will set out exactly how your commercial relationship will work.

This should define products and territory, pricing and payment terms, marketing responsibilities, intellectual property protection and performance expectations.

It can also help reduce the risk of disputes and ensure you are all on the same page from the outset.

So, if things do unfortunately go wrong, you can go back to your agreement and know how the issue should be resolved and what your rights are to terminate the relationship.

Are there different types of distribution agreements?

Different business strategies require different types of agreements and you will need to choose the right structure based on how much control you want and what you want to achieve.

An exclusive distribution agreement is used to grant one distributor sole rights within a specific territory and this can strengthen brand control and encourage commitment.

However, it does limit your ability to work with others.

On the other hand, there is a non-exclusive agreement and this allows multiple distributors to operate in the same area and can offer you more flexibility and a greater market reach.

Additionally, there is a selective distribution agreement and this is often used for premium or specialist products and distributors must meet certain standards to protect the brand reputation.

How can we help ensure your agreement is enforceable?

Distribution agreements are the first brick in building a successful commercial relationship and we want to make sure it is done right.

We can help draft or review your agreement, negotiate terms, ensure the agreement is compliant and that your interests are protected.

If issues do start to arise, we can advise you on how to manage disputes and the best option to do this, such as through enforcement or negotiation.

Our professional team want to help you get your agreement off to a good start and help you grow.

If you need further advice on when you need a distribution agreement, get in touch.

When you approach the end of your commercial lease, you might not be able to just hand over your keys without any other obligations.

Some tenants may face a dilapidation claim if they have not complied with their covenants after they have left the property and this could come with unexpected costs.

When your lease comes to an end, you must understand your end-of-lease obligations to help avoid any prolonged disputes.

To help you understand dilapidations in more depth our Head of Commercial Property, Elena Nicolaou, has explained the rules.

What are dilapidations in commercial property?

Dilapidation is when you breach your repair, maintenance and reinstatement obligations under a commercial lease.

They often relate to the condition you leave your property in when your lease ends.

Most commercial leases will require you to keep the premises in repair and return them in a specified condition when you leave.

Dilapidation can include anything from repair, for example broken windows, damaged flooring, cracked walls leaky roofs, redecoration, reinstatement and statutory compliance depending on your obligations contained in the lease.

If you are at the end or near the end of your lease, your landlord will usually instruct a surveyor to inspect the property and prepare a Schedule of Dilapidations.

Depending on the terms of your lease it may dictate how long after the end of the term the landlord must serve a schedule of dilapidations.

This document will set out the alleged breaches and the work or cost needed to put them right.

Why do dilapidations matter in commercial property?

Dilapidation claims can be an unwelcome expense.

Claims can run into thousands of pounds and may include:

• The cost of remedial works
• Loss of rent while the property is repaired
• Professional fees, including surveyor or legal costs

If they are not handled properly, dilapidation can lead to ongoing disputes and even court proceedings if an agreement cannot be reached.

What must you do if you have a dilapidation claim against you?

Depending on the timing and the lease terms, you may be given the opportunity to carry out the remedial work yourself before vacating the property.

However, your landlord may wish to pursue a financial settlement to cover the costs of the alleged dilapidation and this is more common if your lease has already ended.

You should review your landlord’s Schedule of Dilapidations as there may be scope to challenge or renegotiate the claims being made subject to professional advice.

Dilapidation claims are also subject to the Dilapidations Protocol which set out the process parties are to follow before court proceedings are commenced.

This protocol encourages early communication to resolve disputes and requires the landlord to not only supply the schedule dilapidations but supporting evidence too.

Whilst the protocol is not mandatory the court will severely scrutinize any failure to comply and can impose financial penalties on the parties.

How can tenants prepare for dilapidation?

Preparation is crucial before you end your lease and this should include:

• Reviewing your lease – You should review your lease at least 12 to 18 months before it ends to understand your repair and reinstatement obligations and the yield up provisions. Once your lease has ended y0u have no rights to re-enter and do the work.
• Instructing a surveyor – A surveyor can conduct pre-lease-end inspections to spot any dilapidation issues and help you understand the likely costs and repairs.
• Budgeting for costs – Once you know of any liabilities, you can include dilapidation costs in your financial planning.
• Keeping clear records – You should retain evidence of repairs, maintenance and alterations conducted during your lease and include all photographs and correspondence with your landlord.
• Checking the Schedule of Condition – If your lease includes a Schedule of Condition, this should be carefully reviewed, as it may limit your liability for pre-existing defects.
• Considering reinstatement obligations – If you have made alterations to the property, you should check whether these must be removed at the end of the lease and plan for the time and cost of these. These provisions may either appear in the licence for alterations themselves or be part of the yielding up provisions in the lease itself
• Seeking legal advice – You should avoid agreeing to any settlements or carrying out major works without professional guidance first.

How can we help with your dilapidation?

Dilapidations can be overwhelming and we are here to support you through any claims and help you understand your obligations

We can review your lease or Schedule of Dilapidation and provide the necessary advice and options re moving forward

If you need advice when coming to the end of your commercial lease or managing a dilapidation claim, contact our team today.

It is quite easy to get caught up in the excitement of the growth opportunities a merger and acquisition (M&A) deal brings.

However, losing focus on the necessary legal and financial due diligence checks can leave your transaction not playing out as you hoped.

The success of your deal relies heavily on a thorough legal due diligence process, which can raise red flags that can quickly turn a promising deal sour.

Our Supervising Department Director of the Company Commercial department, Matthew Johnson, delves into where these risks can arise.

Why is legal due diligence important?

Legal due diligence is the process of fully understanding the legal position of a business before any commitment to acquire or merge with it is made.

It allows buyers and investors to know exactly what they are acquiring and any risks or onerous obligations that come with the deal.

It also offers business owners who are selling the chance to prove their company is operating compliantly and is worth the agreed value.

Without due diligence, hidden legal and financial liabilities may go under the radar and result in damage to your existing business.

Equally, if due diligence forces the buyer to unveil them later on in the process, it could put your deal at risk of renegotiation or them walking away entirely.

Unclear or missing records

A company’s documentation is the first thing a buyer will look at.

Any missing or inconsistent records, such as shareholder agreements, articles of association or Companies House filings, can quickly raise concerns.

Even small discrepancies can hint at a bigger governance issue and invite room for disputes.

Weak intellectual property protection

Intellectual Property (IP) can be a business’s most valuable asset and buyers will want to be sure that any copyrights, trademarks and patents are secure.

IP that has not been properly registered or protected will create risks and any uncertainty over ownership can affect valuation or even halt a deal entirely.

Contractual gaps and risks

Buyers will have a magnifying glass on a company’s commercial contracts and will be checking that agreements with customers and suppliers are robust and enforceable.

Alarm bells will be ringing if you have poorly drafted contracts or missing liability protections and buyers may be worried that further risks could creep up.

Disputes and regulatory issues

Perhaps some of the most serious concerns for buyers are ongoing litigation or regulatory breaches, as they can have immediate financial and reputational consequences.

This is where buyers may look to add additional conditions to the deal or withdraw altogether to protect their interests.

How can you prepare for these risks?

You don’t want to put your deal at risk because of something that could have been prepared for.

That is why you need to put the time aside to review your legal documentation, contracts, internal processes and resolve any issues before negotiations occur.

We know that not all of these risks are visible to the naked eye and that is where early legal support can help.

How can we help keep your deal on track?

We are here to support businesses through every stage of legal due diligence and help them spot any issues before they become obstacles.

From review contracts to advising on compliance and risk, our team works closely with you and your advisers to keep your transaction on track.

If you need further advice or support on your business contracts, get in touch with our team.

You might think that your business will never be the one that breaks down over a shareholder dispute.

However, it is a major cause of business failure, particularly for small-to-medium-sized companies and partnerships.

Even the strongest relationships can come under strain when circumstances change or challenges arise.

When you’re trying to separate emotion and fact during these disputes, a business valuation can be invaluable.

Luke Morgan, our Director and Manager of our Commercial Litigation and Dispute Resolution department, explains more.

What is a business valuation?

A business valuation determines what your company is worth. It delves into the overall health and position of your business to reach a fair, realistic value.

A valuation will consider your:

• Financial performance
• Assets
• Liabilities
• Cash flow
• Future earning potential
• Intellectual property
• Brand value

A professional will take all this into account and produce an objective figure that all parties can rely on.

When is a valuation needed?

Valuations are often needed when a shareholder wishes to exit the business and a fair price needs to be agreed upon.

They are equally important when there are disagreements over dividends or situations where a partner is being removed or replaced.

It might be that your company itself is changing, such as restructuring or preparing for a sale, so you need to have an understanding of the company’s value.

Methods of business valuation

Valuations are tailored to your company and the nature of your dispute, so there is no single method for everyone.

However, there are three main approaches.

Income-based

This approach values the business based on its expected future cash flow, which is discounted back to its present-day value.

It works particularly well where income is stable and considers the returns a buyer or investor might expect.

Market-based

This method determines value by comparing the business to similar companies that have recently been sold, using metrics like EBITDA or revenue multiples.

It can be very effective for valuing controlling interests, although it may be harder to apply where there is limited market data to compare it to.

Asset-based

This approach calculates value by assessing the market value of a company’s assets and subtracting its liabilities.

It is often suited to asset-rich or distressed businesses, but may not fully reflect value such as goodwill or intellectual property.

How does a valuation help in disputes?

It is likely in shareholder disputes that one party will wish to exit or for their investment to be met with compensation.

It’s hard to come to a figure you can both agree on, as naturally, you will skew the valuation in your favour.

A professional valuation introduces an independent, evidence-based perspective and helps remove personal bias.

This fair assessment also helps keep negotiations constructive and prevent disputes from escalating further.

If your dispute progresses to more formal court proceedings, this is a good basis to have and you can be sure any points are backed by a credible financial analysis.

How can we support your valuation?

Going through a shareholder dispute is difficult enough without having to worry about the value of your business.

Our team can review your shareholder agreements to identify any agreed valuation methods and guide you through the valuation process to ensure the outcome is fair.

We can also support any negotiations between shareholders and work towards resolving disputes through a settlement or mediation, where possible.

Let us help protect your financial interests and the future of your business.

Get in touch for further advice or support for your shareholder dispute.