When selling a business, it’s crucial to be aware of the legal mechanisms that can protect the buyer’s interests and the goodwill of the business. One such mechanism is the use of restraint clauses, which can be a critical component of a sale agreement.
Restraint clauses, also known as non-compete clauses, serve to bind the seller and prevent them from engaging in competitive activities after the sale. Restraint clauses can cover various aspects, including geographical location, duration, and the type of activities that the seller is prohibited from engaging in.
In Queensland, restraint clauses must be reasonable to be enforceable. This means that the restrictions imposed on the seller must be justifiable in terms of protecting the legitimate interests of the buyer. Courts in Queensland will scrutinise the reasonableness of these clauses by considering factors such as the scope of the restraint, the geographic area covered, and the duration of the restriction. If the restraint is overly broad or overly long, it may be deemed unreasonable and unenforceable.
Both buyers and sellers should carefully consider restraint clauses during the negotiation of a business sale agreement. Seeking legal advice will ensure that your restraint clauses are appropriately tailored to the specific circumstances of the business sale, striking a balance between protecting the buyer’s interests and respecting the rights of the seller. A well-drafted restraint clause can protect the buyer’s investment and the ongoing success of the business, whilst an overly restrictive or poorly crafted one may face legal challenges.
The Small Business Lawyer has expert solicitors who can help you navigate the complex nature of restraint clauses. To book in a free 20-minute consult with us, click here.