Pitfalls of Purchasing a Business

By: Kyle Jensen, Esq.
Clark, Campbell, Lancaster & Munson, P.A.

Acquiring an established and successful business may appear to be an attractive and low risk proposition for both experienced or novice entrepreneurs; however, there are numerous issues a prospective buyer should consider and pitfalls to avoid before purchasing a business. Asking the right questions and conducting proper due diligence can save the buyer significant time and money and put the buyer in a strong position to succeed once it purchases the business.

Generally, there are two basic ways businesses are sold. The first is the sale of the ownership interests of the business. The second is the sale of the assets of the business. Each avenue provides various benefits and detriments, and a prudent buyer will consider all factors before determining how it will acquire the business. For example, purchasing the ownership interests of the seller allows for a smooth transition of the business, but may also expose the buyer to significant liabilities. Further, purchasing the assets of the seller may, but not always, allow the buyer to avoid certain liabilities of the seller, but may also require the buyer to renegotiate advantageous contracts with the seller’s vendors and customers.

Regardless of whether the buyer is purchasing the seller’s ownership interests or the seller’s assets, the buyer should determine the potential liabilities the buyer may be exposed to after the purchase, such as whether there are any (i) outstanding lawsuits against the seller, (ii) outstanding taxes due, or (iii) security interests filed against the seller’s assets. It is vital that the buyer ascertain its exposure to potential liabilities and either adjust the purchase price of the business accordingly or walk away from the deal.

Other issues the buyer should consider relate to the operation of the business once purchased. For example, the buyer may want to obligate certain owners or employees of the seller to assist the buyer with the transition and operation of the business after closing. The buyer may also want to impose a non- compete on the seller and its owners, prohibiting them from competing with the buyer in its business. Lastly, if the seller is renting the premises where it operates, then the buyer should carefully review the lease to confirm the terms are agreeable to the buyer and that the seller can assign and the buyer can assume such lease. It is always prudent for the buyer to require the seller to obtain the landlord’s consent to such assignment.

The above items are just a few of the numerous issues a buyer must consider when purchasing a business. Accordingly, it is often in the best interest of a buyer to retain an experienced business attorney to assist them with purchasing a business.

Kyle Jensen is an attorney with the law firm Clark, Campbell, Lancaster & Munson, P.A. in Lakeland. Questions can be submitted to thelaw@cclmlaw.com.

A Starting Guide to Non-Conforming Uses

By: Zachary H. Brown, Esq.
Clark, Campbell, Lancaster & Munson, P.A.

Question: If I’m operating a business in a zoning district that my business is no longer eligible to operate in, what can I do?

Property owners have been experiencing issues revolving around zoning since the concept was first implemented in the 1920’s. For example, local governments have zoned property that was historically used for commercial or industrial purposes to something more in character with the surrounding neighborhood, such as residential or office. While some property owners thought that this was an overreach of governmental power, the Supreme Court of the United States ruled that local governments had this authority under the Constitution. Local governments now use this tool regularly to effectively plan their cities.

So, what are the options available to property owners whose ability to use the land has been severely limited as a result of a zoning change? One option available involves continuing to use the land under its current use under a common exemption that deems it “non-conforming.” Non- conforming uses are a way local governments “grandfather” in properties that no longer adhere to the local zoning regulations.

Non-conforming properties are typically properties that, at one time, were not prohibited under the zoning laws of whatever local government the property is situated in, but as zoning laws have changed the property can no longer operate as it has historically. In addition, “non-conforming” does not only apply to the use of the property itself, but also to structures and lot regulations that are associated with the property.

Local governments are wary of non-conforming uses because the property is being used in such a way that makes it inconsistent with the government’s planning purposes. As a result, many local governments will put caps on when a use can be discontinued and then continued again. For example, in the City of Lakeland if a property owner ceases operating a property as a non- conforming use for 365 days, then local law prohibits you from continuing the operation of that property as a non-conforming use. It is important that if the property owner is operating a business as a non-conforming use, that they continue to do so, or risk losing that prerogative indefinitely.

Local governments are also likely to place restrictions on non-conforming uses that limit the expansion of the structure or use that is deemed non-conforming. This is a result of the local government trying to keep the non-conforming use limited to what it was prior to the zoning change in hopes of discouraging expansion of that use, so as to fit the local government’s planning purposes. This is also included in the City of Lakeland’s Land Development Code, with the only exception to this being alterations to structures that are seen as maintenance or repair.

Conclusion: Local governments have become creative in the planning of municipalities, but sometimes this creativity comes at the expense of local property owners. If such a situation has come about, or if you are currently associated with a property that is non-conforming, the best course of action is to consult with a local attorney about your best options to maintain the property as it is and to keep the non-conforming designation.

Zach Brown is an attorney with the law firm Clark, Campbell, Lancaster & Munson, P.A. in Lakeland. Questions can be submitted to thelaw@cclmlaw.com.

Defect Disclosure Requirements for a Residential Sale

Historically, when real property was being bought and sold the doctrine of caveat emptor or “let the buyer beware” controlled. Under this doctrine, it was the buyer’s sole responsibility to determine if any defects were affecting the property and the seller had no obligation to bring such defects to the buyer’s attention.

Many jurisdictions, including Florida, have abandoned the doctrine of caveat emptor to an extent and have created a duty for sellers to disclose certain defects. In a Florida residential sale, where the seller of a home knows of facts materially affecting the value of the property which are not readily observable and are not known to the buyer, the seller is under a duty to disclose them to the buyer. If the seller fails to disclose latent defects, then the buyer can bring a lawsuit against the seller for damages relating to any such defect.

Importantly, selling a house “as-is,” or including an “as is” clause in a residential sales contract does not excuse the seller’s duty to disclose latent defects. An “as-is” sale is a sale in which the seller has no obligations to make repairs to the property but the seller still must disclose any known latent defects.

When selling your home, it is important to make any disclosures regarding potential latent defects in writing. If you make disclosures regarding latent defects orally you may have difficulty proving at a later date that you made the disclosures. If a buyer then brings a lawsuit against you for failing to disclose a latent defect, you might not be in as strong a position as if you had made the disclosure in writing at the outset. As a best practice, when disclosing latent defects, do so in writing.

A seller is only responsible for disclosing latent defects which the seller has actual knowledge. A seller’s obligation to disclose latent defects does not turn the seller into a guarantor as to every condition of the house being defect-free. If a buyer purchases a home and discovers a latent defect, he or she will not be able to hold the seller liable unless the seller knew of the defect and the defect materially affects the value of the property. This protects sellers from being in the almost impossible position of being responsible for any latent defect in a home that becomes known to a buyer after the sale.

The Florida statutes make certain exceptions regarding disclosure of some latent defects which certain buyers may consider to be material. For example, a seller has no obligation to disclose that an occupant of the property is infected with HIV or AIDS; or that the property was the site of a homicide, suicide, or death.

If you have purchased a home and discovered a latent defect for which you believe the seller had actual knowledge and failed to disclose, you should promptly consult with an attorney to explore any legal options you might have. Similarly, if you are a seller who

has been contacted regarding a claimed latent defect in a house you sold, you should promptly contact an attorney to discuss your legal options.

Matt Kelly is an attorney with the law firm Clark, Campbell, Lancaster & Munson, P.A. in Lakeland. Questions can be submitted to thelaw@cclmlaw.com.