An agreement of selling a commercial shop in UAE is a legal and valid document, which records all terms and conditions between a business owner and business acquirer entering into a contract for an acquisition or some kind of strategic alliance. It’s a mutually binding agreement between a commercial shop buyer and seller and includes all of the conditions such as purchase consideration, warranties and representations, an asset purchased, and closing conditions.
The agreement supersedes any prior understanding and agreement between concerned parties – both written and oral. It is used as the document that transfers ownership of a UAE commercial shop. The agreement can also contain a determination of net working capital, key employees, annexures that describe the shop’s inventory list, tangible assets, etc.
Note: an agreement to sell a commercial shop has to be notarized by a notary public in Dubai, UAE for legalization.
Important clauses in the agreement to sell a commercial shop are as follows:
Key Terms Definition
For this clause, define all of the key terms, as well as the meanings of the terms as they’re used throughout the document. Describe how the commercial shop seller and the acquirer are referred to within the document, the sufficient working capital, as well as the meaning of a closing date.
This clause defines the aggregate consideration in which the buyer will be liable for paying the seller. Discuss as well any adjustments which have to be made with the purchase price. Provide a complete list or timeline of the payment following the closing date. Specify the earnest money which has to be given to the seller through a deposit, as well as any third-party financing, earn-outs, and required working capital by the closing date.
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Representations and Warranties
With this clause, the buyer and the seller of the commercial shop in UAE will have to state and mutually agree on the facts which are referred to as the ‘representations’ with statements that are true, which are the ‘warrant.’ The clause is among the longest and most important parts of an agreement to sell and purchase a commercial shop in UAE.
The goal of a buyer would be to get as comprehensive and thorough representations and warranties as possible as they can offer valuable information regarding what the buyer’s paying for. The object of the seller would be to limit the representation and warranties.
The typical warranty is that the seller acts in full compliance with all applicable government regulations, and intellectual property legislation, and has legal authority in entering into the agreement with the buyer.
For a seller, representations and warranties can be limited through the adaptation of the following:
- Materiality – Define what’s material as well as what might cause an adverse material impact
- Duration – Set a particular time for the applicability of the representations and warranties. Upon expiry, the seller will no longer be responsible for whatever occurs past the period.
- Solicitation – Deals with the seller looking for another buyer. A ‘no-shop’ sub clause restricts a seller from seeking another buyer. It will be beneficial to the buyer of the commercial shop as there’s no worry about outbidding other potential acquirers. A ‘go-shop’ sub clause will be the one that allows a seller is actively looking for a better bid compared to the current one. It’s often used when a seller isn’t getting a good price or the desired price. Its inclusion isn’t great from the side of the buyer.
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Although an agreement to sell a UAE commercial shop has its foundations laid with the representations and warranties, an indemnification clause will give it some more strength. If the seller fails in disclosing any liability of the commercial shop or somehow chose to conceal it, a seller can pay the buyer or acquirer a huge amount of money. Indemnification provisions that are often negotiated extensively are as follows:
- Survival – This isn’t for perpetuity. It provides a date of expiration for indemnification claims that are made under the representations and warranties. Survival ranges from a year to three years.
- Sandbagging – This, it’s more buyer-friendly because it allows a buyer in bringing an indemnity claim that is based on a breach even when it was known before the date of closing. A seller will try to limit remedies to the buyer based on the preexisting knowledge of the breach or inaccuracy.
- Cap – This allows for a setting of the maximum limit on the indemnification obligation of the seller. It can be by a percentage or a specific amount in AED. The ideal situation would be for the seller to set the cap as low as what’s possible. The buyer, on the other hand, would want to be rid of the cap or try in increasing the size of the cap through negotiations.
If you want more information regarding the drafting and notarization of an agreement to sell a commercial shop in UAE, call us here in Notary Public Dubai today!
Hassan Humaid Al Suwaidi is a UAE Citizen and the founder of the firm HHS Lawyers. He has a vast experience of 20 years of dealing with high-value and complex notary requirements. Hassan has been involved in some of the largest legal settlements in the UAE and is commended for his ability to attain the most favourable outcomes for his clients.