Protecting yourself when buying "in Trust"

May 1, 2017

 

When a Buyer offers to buy “in Trust” for a company or wants the ability to allow a third party to actually complete the purchase and take title on Closing, the Buyer is essentially trying to “assign” the Agreement. In such a situation the Seller is left unprotected if Buyer #2 (the “assignee” from Buyer # 1) fails to Close. In order to protect the Seller, and to some extent Buyer #1 and Buyer #2 as well, it is most prudent to use the pre-printed OREA Assignment Form 145 which covers off many of the issues that must be addressed in an assignment situation. At the very least, we must try to protect the Seller by inserting a provision that Buyer #1 will continue to be liable to the Seller under the terms of the original Agreement at least until Buyer #2 has successfully closed the transaction.

 

Secondly, we must remember that while it is possible, in law, to unilaterally assign the “benefits” under an agreement, it is not possible, in law, to unilaterally assign the “obligations” under an Agreement. It is therefore absolutely critical that Buyer #2 (together with the Seller and with Buyer #1), be made to sign an agreement which provides that Buyer #2 will be liable for all the obligations in the original Agreement of Purchase Sale to the full extent as if she/he were the original Buyer under the Agreement.

 

 

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