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Posted: 18 Nov 2009
It is standard in any transaction for the sale of a rent roll or business for the business owner to provide a restraint of trade to not compete with the buyer for a certain period within a certain radius of the business premises.
The seller undertakes not to be involved in any similar business in any way whatever during the period of the restraint.
Business buyers are purchasing the future income stream of the enterprise. This restraint provision protects them against the previous owner attracting customers from within the stated area. This is particularly important where the seller’s personality, skills, and relationships have been important to the business success.
The extent of the restraint of trade will depend on the circumstances.
Restraints of trade need to be “reasonable”. The courts will consider the term, geographic scope, the nature of the business, and the consideration paid.
Business owners who prevaricate on entering into a reasonable non-compete clause will scare off a potential buyer. The restraint may be an important element in the buy decision.
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