Transaction practice lawyers constantly face a barrage of choices for their legal documentation when trying to provide quality, fast, and efficient legal services to their clients.

Most do not have the luxury of unlimited time and resources to provide these services. Often, practitioners look for existing materials to use as samples for documenting agreements between their clients and opposing parties.

One possible tempting option to address this predicament is to use the so-called real estate practitioner preprinted form agreements produced under the guidance of the State of Wisconsin.

Form Agreements in Offer to Purchase Transactions

Two examples of these preprinted forms are the WB-17 Offer to Purchase - Business Without Real Estate Interest and its affiliated agreement, the WB-B-16 Offer to Purchase - Business with Real Estate Interest (which I will sometimes refer to as the business purchase agreements).

These business purchase agreements can be very tempting to use, because they appear to cover many of the common terms and conditions one would expect to include in a business asset purchase agreement. A quick perusal, and one notes that they include such terms as party identification, asset lists, the purchase price, and closing date.

When in the hands of a real estate licensee, use of these forms is intended to resist substantial modification, essentially allowing a practitioner to fill in blanks and cross out preprinted sections.

The forms go on to include a section addressing representations regarding the condition of the assets, purchase price allocations, handling sales and use tax matters, a lengthy but somewhat hodgepodge set of conditions precedent (i.e., contingencies), some limited definitions, a section addressing performance defaults, and notices.

The forms go on to include a section addressing representations regarding the condition of the assets, purchase price allocations, handling sales and use tax matters, a lengthy but somewhat hodgepodge set of conditions precedent (i.e., contingencies), some limited definitions, a section addressing performance defaults, and notices.

An unwary practitioner could be lulled into thinking that these forms seem comprehensive.

Areas Left Unaddressed

Unfortunately, using these forms could easily lead to misunderstandings and confusion – and possibly malpractice. While these business purchase agreements do contain some of the terms and conditions that one would expect to find in a typical business asset purchase agreement, there are some glaring omissions.

As one example, they fail to impose any duty of confidentiality regarding the transaction (except for certain identified document disclosures).

In another example, the forms do not address how to handle employees when the transaction closes nor how to address employee benefit programs. Is the seller to terminate the employees at closing so the buyer can hire them? Can the buyer interview employees prior to closing? What about any benefits that the employees receive? What happens to these benefit plans?

Additionally, the forms fail to address the concept of third-party consents and approvals that are often a component of a business sale. What if the business is a franchise? The sale of the business is most likely subject to pre-approval by the franchisor. What if there is a key vendor or customer whose consent is required for their agreement to be transferred to a buyer?

These forms also fail to address any form of post-closing remedies related to risk or liability allocation. In other words, there is nothing in this agreement that addresses what happens if a party suffers a loss due to reliance on a misrepresented fact by the other party. An aggrieved buyer under this agreement is stuck potentially having a claim for a contractual breach of warranty, yet the section dealing with defaults fails to mention this at all. The language of the default section appears to consider (and possibly limit) remedies solely to breach of performance, not breach of warranty.

What clients would want to have to undertake a costly dispute resolution process, or litigation, when arrangements to address these matters could have been included in the transaction documents to begin with?

A further example arises in the limited definitions contained in the forms. The impact this has on seller representations leaves much to be desired. Certain terms of art and industry standards have developed around representations and warranties made in business asse transactions, such as the concept of materiality and knowledge. These agreements use alternative language and combinations of words that do not follow the typical industry standards which could make interpretation and enforcement more difficult.

For example, the forms have the seller make a representation that they have no notice or knowledge of “[A] condition affecting the business, asset or transaction.” They go on to define what a “condition affecting the business, asset or transaction" is supposed to mean, which is several pages long, repeats itself in different and vague ways, and is still left with an open-ended "including but not limited to" qualifier. Could this put a seller into greater peril for having made unlimited representation about the condition of the assets being sold?

These forms also follow the same procedural pattern that is customary for broker-assisted real estate transactions. Essentially, the document is drafted in the form of an offer that must be presented to the seller, which must then be accepted by the seller. An unwary user of the form could inadvertently complete the form with an acceptance deadline that is then missed, possibly raising doubt about the enforceability of the agreement. No lawyer wants to have a discussion with a client about a contract they prepared possibly not being enforceable.

A Cautionary Tale

This is by no means a comprehensive list of the faults of these forms when viewed through the lens of the industry standard business transaction guidelines. Suffice it to say, the use of these preprinted forms to accomplish the documentation of a client business asset transaction may be an appealing way to enhance efficiency but can come with perils.

This article was originally published on the State Bar of Wisconsin’s Business Law Blog. Visit the State Bar sections or the Business Law Section webpages to learn more about the benefits of section membership.