Category: Contracts

  • What is a Merger Clause in a Contract?

    What is a Merger Clause in a Contract?

    If you have read our previous post regarding whether verbal agreements are enforceable , you know to be wary of any oral or side agreements that are not embodied in a final written document. Merger Clauses, very common in contracts, take it a step further. An example of a typical Merger Clause is:

    The terms of this Agreement are intended by the Parties to be the final expression of their agreement, and supersede all prior understandings and agreements, whether written or oral.

    The effect of such a provision is to merge all prior agreements and understandings into this one, single, document. This means, quite literally, if it is not written in the contract, it is not part of your agreement. Period. If something is missing, or if you require some sort of verbal clarification with respect to the meaning or practical effect of contract language, get it in writing. Verbal clarifications are not binding on the other party in the presence of a Merger Clause, and are most likely unenforceable.

    You can usually identify a Merger Clause because the section heading will be titled something along the lines of Entire Agreement, Complete Agreement, Whole Agreement, Integration Clause, or more simply, Merger Clause. Be aware, these clauses are often confined to the fine print or boiler-plate section of the agreement. This can imply that the clause is standard and/or is not that important to read.

    Generally, there is little to fear from a Merger Clause contained within a well-drafted contract. If the contract has sufficient detail, contains the entire understanding of the parties, lacks ambiguity, and does not require any additional clarification, it should not be a problem.

    However, when a non-attorney drafts the contract, and the other party does not have an attorney review it, Merger Clauses can mean big problems. In the event of a dispute with respect to the interpretation of the agreement, the Merger Clause prevents either party from presenting evidence beyond the literal language of the contract. This means no emails, text messages, telephone calls, or handshake agreements can be used to interpret (or reinterpret) the plain language of the agreement.

    Issues with respect to Merger Clauses most commonly arise in the context of service contracts, where the scope of work to be performed is not defined clearly enough. Both parties believe that they have reached a common understanding of the task to be performed. However, normal people (i.e. non-lawyers), read the language of a contract and usually see what they believe the agreement to be. They are not trained to issue-spot like Attorneys. Attorneys review a contract and identify potential problems (i.e. lack of sufficient detail about the scope of work) and craft solutions for their clients.

    Merger Clauses, when done properly, allow the parties to have their entire agreement embodied in a single document. Such clauses incentivize the parties to be specific ahead of time, which avoids problems in the future. Having professional assistance when preparing a contract is the best way to protect yourself. That is why it is important to consult with a contract attorney before drafting or signing an agreement containing a Merger Clause.

    For more information, or to speak with an attorney about drafting or reviewing your contract, please contact our office for a free consultation.

    Disclaimer: This blog is made available by Kloss, Stenger & LoTempio for educational purposes only. It is not intended to provide legal advice nor form any attorney client relationship between the reader and Kloss, Stenger & LoTempio. You should always seek professional advice from a licensed attorney for any legal questions you may have.

  • 5 Things to Remember When Selling Your Business

    5 Things to Remember When Selling Your Business

    Today’s strong economy and recent tax overhaul may have you considering selling your business while prices are high. With a less restrictive tax code in place, the asking price for businesses could increase even more. Selling a business can be fraught with challenges, so it is important to have a plan to ensure that your sale goes smoothly and does not leave you with seller’s remorse.

    Here are five things to remember before you sell your business:

    1. Have Your Corporate Documents Ready. Before you will be able to close a deal, the parties will participate in the due diligence process. The due-diligence process is where the purchaser, the purchaser’s attorneys, and the purchaser’s accountants review the company’s assets, liabilities and overall financial health before completing the sale. For the most part, you will be able to anticipate what documents the purchaser will ask to review. If you have those documents organized and ready, it will make the due diligence process proceed faster and more smoothly. Standard due diligence documents to have ready are:
    • Corporate Formation Documents (Certificate of Incorporation, Articles of Organization, Bylaws, Operating Agreement, Certificate of Good Standing)
    • Financial Statements (Bank Statements, Payroll Records, Tax Returns)
    • Customer Records
    • Employee Contracts
    • Third-Party Contracts (Contracts with your Vendors and Customers, Equipment leases, Licensing Agreements)
    • Asset Contracts (Real Estate Purchase Contracts, Property Leases)
    1. Purchasers Want Real Value. Purchasers will not pay for what you believe the company is worth. You must be able to demonstrate to them not only the company’s sales, but also its profits. If that is difficult for you, maybe now is not the right time to sell. Biding your time may allow you to generate a better sales record and, thus, a higher purchase price. Having your corporate documents ready before you begin negotiations will give a better idea if you are financially ready to sell.
    2. Be Patient. Finding the right purchaser for your business may take time. Jumping at the first offer could mean leaving money on the table. For this reason, you may want to consider hiring a broker to help generate more interest and more offers.
    3. Consider Your Role Post-Sale. How will you generate an income after the sale closes? Will the sale proceeds be enough to sustain you? Can the business sustain itself without you? Depending on the nature of the business, you and the purchaser may decide that it is best to keep you involved after the ownership change. The business may be in an industry where the personal relationships you have developed will be critical to its future success. Perhaps you have unique skills and capabilities that the business will need in order to be successful. Often a purchaser will make a sale contingent on locking-up a key member of the organization for several years after the sale. Consider what arrangement works best for you.
    4. Have an Attorney Review the Contract. The final contract is the most important piece of the whole deal. Having the contract reviewed by an attorney is the best way to protect yourself from the dreaded fine print . Your attorney can help you identify any traps, provide you with valuable advice, and help you negotiate the best deal possible. Entrepreneurs tend to believe that they can do it all on their own, mostly because early on they had to. When it comes to selling the business, however, the drafting and review of the contract is best left to the professionals.

    For more information, or to speak with an attorney about how to sell your business, please contact our office for a free consultation.

    Disclaimer: This blog is made available by Kloss, Stenger & LoTempio for educational purposes only. It is not intended to provide legal advice nor form any attorney client relationship between the reader and Kloss, Stenger & LoTempio. You should always seek professional advice from a licensed attorney for any legal questions you may have.

  • The Clarence Lifestyle Center: 7 Things to Consider before Signing a Commercial Lease.

    The Clarence Lifestyle Center: 7 Things to Consider before Signing a Commercial Lease.

    You might have heard that the Eastern Hills Mall in Clarence is considering the possibility of undergoing a significant renovation. As development in Western New York continues to surge, the Mall, a 20th Century concept, is positioned to either adapt with the times, or be a relic of the past. This blog post will explore several important things to consider if you are interested in signing a commercial lease.

    Recently, the Clarence Town Board created a Lifestyle Zoning Code, seeking to create an overlay district of both commercial and residential activity. Although no zoning changes have been made to the Eastern Hills Mall property, a zoning change, if approved, would allow development of a modern center for living and commerce with smaller, more upscale retail stores, more walkability, and the possibility for residential living spaces to be developed. Considering that the health of dated Malls in Western New York is not strong, and that Clarence is actively trying to manage the commercial feasibility of the mall, there is great potential for business growth at the new center and even the areas surrounding the property.

    If the Mall underwent such a drastic change, it may provide a fertile ground for investment considering the prime location of the property and the buzz a new mixed-use retail and residential space would generate. Regardless of the location, there are certain things to consider before signing a commercial lease.

    1. Term Length:

    Most commercial developers prefer to lock in tenants to long-term leases. This enables developers to more easily recoup the costs of their investment. Hiring brokers, advertising the space, as well as any time the space is unoccupied, all cost the developer money. Further, a substantial overhaul of existing commercial space may be facilitated through debt financing (i.e. bank loans). This means that due to financial constraints (i.e. loan payments), property owners that recently renovate their space are unlikely to accommodate shorter lease terms for seasonal or start-up businesses.

    1. Rent Increases:

    It is important to review the lease carefully to understand how your rent can be increased. Most lease agreements will have stated rent levels for each year of the lease. Some commercial leases may tie rent increases to inflation, which changes from year to year, but generally has hovered around 2% in recent years.

    Many lease agreements also require tenants to shoulder the costs of improvements made to the overall property. For example, the property owner’s cost to repairs to HVAC systems, elevators, parking, interior structures, or even real estate tax increases may be passed on to the tenants.

    1. Breach, Default, & Legal Action:

    While no new business wants to think about it, it is important to familiarize yourself with the termination and breach sections of your lease agreement. Lease agreements may limit your ability to terminate the lease, go to court, seek damages, or may even require you to bear the property owner’s legal costs in the event of a dispute. As the property owner drafts most lease agreements, they slant heavily in their favor. First time lessees should beware.

    1. Tenant Improvements to the Space:

    Owners of older commercial spaces will likely be more permissive in allowing tenants to renovate or modify the space to improve its overall commercial attractiveness. They are also more willing to negotiate temporary rent abatement in exchange for the tenant bearing the costs of improvement. The catch here is that any improvements must remain after the expiration of the lease. New commercial spaces are different. The property owner may be less willing to offer rent abatement, and may not allow modification of the space. Make sure to be aware of these restrictions before signing, and evaluate how they affect your business.

    1. Know Your Competition:

    This Clarence Lifestyle Center will likely have a strong demand for a fitness/workout facility, an upscale health food store, and an entertainment complex for residents or shoppers. If you are in the business of providing any of these services or products, you may want to negotiate a clause with the property owner that restricts other tenants from providing similar services.

    1. Hours and Logistics:

    Consider the hours of operation for the mall or commercial space. Malls typically require tenants to maintain the same business hours, or greatly limit their flexibility to change hours or days of operation. You should consider how these restrictions might affect your operating costs.

    You should also consider the amount of parking available. Does your business experience an even flow of customer traffic? Or does it experience periods of high volume and low volume? If the commercial space does not have adequate parking to accommodate your customers, your business will likely suffer. You may wish to consider negotiating designated reserved parking with the property owner.

    1. Hidden Fees:

    Check if the lease requires the tenant to pay for business essentials such as high-speed internet connectivity, property maintenance, or property taxes. These fees will add up and affect your bottom line.

    Having an attorney review your commercial lease agreement is the best way to protect your interests.For more information, or to have your lease agreement drafted or reviewed, pleasecontact our officefor a free consultation.

    Disclaimer: This blog is made available by Kloss, Stenger & LoTempio for educational purposes only. It is not intended to provide legal advice nor form any attorney client relationship between the reader and Kloss, Stenger & LoTempio. You should always seek professional advice from a licensedattorney for any legal questions you may have.

  • 5 Steps to Buying an LLC

    5 Steps to Buying an LLC

    With the arrival of the new year come new year’s resolutions.

    Is this the year to satisfy that entrepreneurial desire to run your own business? But what if you don’t feel like starting from scratch?

    Purchasing an existing business can present less risk and provide more immediate returns than purchasing a start-up. And, now that tax reform has been signed into law, pass-through entities such as limited liability companies will receive more-favorable tax treatment and could make for especially attractive acquisition targets.

    Here are five steps a prospective purchaser of an LLC should consider before beginning the process.

    1. Identify a suitable LLC for purchase

    Things to consider are how will the acquisition be financed, who will operate the LLC after the purchase, how will such an acquisition affect your personal finances, and what is the long-term viability of the company after the purchase?

    After you have identified such an LLC, you will need to make contact with the owner(s) and determine whether they are interested in selling. If they are receptive, it is time to turn your attention to the details.

    2. Establish the framework of the deal

    Are you going to be buying the entire LLC or just a portion of equity (known as “units” instead of “stock”)? The parties, either directly or through their attorneys, will come to an understanding of the key terms of the deal and reduce those terms to writing.

    This document is called a “term sheet” or “memorandum of understanding,” and the parties’ attorneys will use it to draft the purchase agreement. Items that are commonly found within a term sheet include:

    • The purchase price
    • The structure of the deal: buying only the assets of the LLC vs. buying a portion of equity
    • The length and extent of the due-diligence period
    • The timing and method of payment for the purchase price: cash at closing vs. debt financing vs. a mix of cash and debt
    • The closing date
    • Voting rights post-closing
    • Additional miscellaneous contractual provisions, such as a non-compete agreement for the seller
    • Confidentiality, such that all disclosures made between the parties remain confidential regardless of whether the deal is consummated

    To read the full article, originally published in The Business Journal, please click here.

  • 7 Things to Remember When Buying a Home

    7 Things to Remember When Buying a Home

    #1. Be Patient.

    Buying a home can be one of the most exciting and stressful times of your life. It is easy to become overwhelmed. Through it all, the most important thing to remember is to be patient. The average closing takes between 30-60 days from the signing of the contract to the closing table. This may seem like an eternity, but rest assured, there is a lot to do in that period, as you will see below.

    #2. Get Pre-Approval for a Mortgage.

    Before submitting an offer on a house, you should apply for a mortgage pre-approval. It is better to work with a local lender if possible, as closings will typically move faster. Your lender will guide you through this process, and you will need to work diligently with them to secure financing. The pre-approval process will also allow you to better understand how much house you can afford.

    #3. Do not make any drastic career or financial decisions during this time.

    Changing jobs or careers during the home buying process can affect your ability to obtain a mortgage and close on the sale. Lenders will look at your financial history and any disruptions or significant changes can make them more reluctant to lend.

    #4. Do Your Homework when House Hunting.

    Do your homework when searching for a house. Make sure that the house is not just the right house, but that it also fits within your budget. You should compare prices of similar homes in similar neighborhoods. It is also a good idea to see what price homes in the neighborhood have sold for in the past.

    After you have toured several houses, and narrowed your choices down to one, it is time to submit an offer. Once your offer is accepted, you will sign the purchase contract. Now things will move quickly for the next two weeks.

    #5 Have an Attorney Review Your Contract.

    The very first thing you need to do after signing your contract is to contact an attorney. This is very time sensitive. The standard real estate purchase agreements have an attorney approval contingency requiring attorney approval within 2-3 business days. This means that your attorney needs to review and approve the sale within that time.

    Your attorney will review your contract to make sure that it is fair to you and identify any potential issues. After the attorney completes the review, they will issue a letter to the seller’s attorney approving the contract or disapproving the contract with proposed changes. This process usually takes a day or two. A good thing to do during this time is to speak with your attorney or their paralegal regarding what documents they will need from you.

    #6 Get Your Home Inspected.

    After the attorneys send their approval letters, you should arrange to have the house inspected. If you do not know any inspectors, your attorney can recommend one to you.

    Your inspector should be thorough and not afraid to get on a ladder and poke around. After your inspection, a Property Inspection Notice and Addendum (PINA) will be completed by you and the seller. The PINA will be included with the purchase contract.

    #7 Have a Closing Checklist and Use it.

    Then the process will slow down – a lot. Draft a checklist during this time of all of the items that you will need to complete before closing. Ensure that your lender’s requirements will be met, price out and pay for your first year of Homeowner’s Insurance, start packing, pick up a new hobby or just relax. While this is going on, your attorney is working to obtain approval to close on the house from your lender’s attorney.

    And, then the fun begins again.

    Once you get the final clear to close, and the closing is scheduled, arrange for a final inspection of the house. At this time, you and the seller will need to determine who will have the keys, garage door openers, key codes, etc. to the house post-closing. A day or so before the closing, you will need to call the utility companies and municipal water to have the bills changed to your name.

    Your lender will give you a Closing Disclosure Statement three days before closing that lays out how your loan is going to be disbursed and any checks you will need to bring to closing. Your attorney will walk you through this and answer any questions that you may have.

    Attend the closing, sign your name 200 times (give or take 100) and, surprise! You are now a homeowner.

    Having an experienced attorney review your contract and guide you through the home buying process is the best way to ensure a successful closing.For more information, pleasecontact our officefor a free consultation.

    Disclaimer: This blog is made available by Kloss, Stenger & LoTempio for educational purposes only. It is not intended to provide legal advice nor form any attorney client relationship between the reader and Kloss, Stenger & LoTempio. You should always seek professional advice from a licensedattorney for any legal questions you may have.

  • Are Verbal Agreements Enforceable?

    Are Verbal Agreements Enforceable?

    “Verbal agreements aren’t worth the paper they’re printed on.”

    – Unknown

    Small business owners and entrepreneurs often rely upon “handshake” or verbal agreements to conduct business. But are those agreements really enforceable? The answer is it depends.

    Technically speaking, verbal agreements are enforceable in New York with certain exceptions as described by the Statute of Frauds. Practically speaking, it is very difficult to enforce such an agreement. For the purposes of this blog post, we are assuming that all of the requisite elements of a contract are present.

    New York General Obligations Law 5-701 (the “Statute of Frauds”) lists the types of agreements that must be in writing. Some examples are:

    1. the sale of an interest in real property,
    2. the sale of goods for $500 or more (under the U.C.C.),
    3. a contract that cannot be performed within one year,
    4. contracts of suretyship (a guarantee)

    These types of contracts must be in writing or they are unenforceable (with some exception).

    So How Do You Enforce a Verbal Agreement?

    Verbal agreements by their nature lack clear written terms. Parties will often dispute what the terms of the agreement actually were. Faded memories and changes in circumstances can cause these disputes. Without some additional proof, a “he said…she said” argument is not likely to be successful.

    The type of evidence you can use to enforce a verbal agreement is varied. You can use emails or text messages to demonstrate the agreed upon terms. Additionally, the parties’ actions in performing the terms of the agreement are very persuasive.

    For example, suppose you enter into a verbal agreement with a builder to build a fancy new showroom for your business. The builder has until the end of the month to complete it. You and the builder shake hands, you let him into your building, and he proceeds to complete your showroom on time. You cannot then refuse to pay him because there was no written agreement.

    The builder, under the terms of the oral agreement, has fully performed. Further, your actions in permitting the builder to fully perform his obligations under the agreement demonstrates the existence of an agreement.

    Which Type of Agreement Offers the Best Protection?

    Regardless of its technical legality, a verbal agreement is difficult (and expensive) to enforce. A written contract is always better at protecting the parties because it clearly and unalterably describes the parties’ intentions and obligations. While it will require some time and effort upfront, a written contract can help to avoid problems later.

    Having an experienced contract attorney prepare your agreement is the best way to protect your interests. For more information, or to have your agreement drafted or reviewed, please contact our office for a free consultation.

    Disclaimer: This blog is made available by Kloss, Stenger & LoTempio for educational purposes only. It is not intended to provide legal advice nor form any attorney client relationship between the reader and Kloss, Stenger & LoTempio. You should always seek professional advice from a licensed attorney for any legal questions you may have.

  • What are the Elements of a Contract?

    What are the Elements of a Contract?

    Many people enter into contracts on a daily basis without realizing that they are in a legally binding agreement. To help the average person understand when they have a valid contract, we have set forth the elements of a contract below.

    There are four elements of a contract, in order to have a valid contract, all four must be present:

    1. Offer

    This is the first step towards a contract. One party makes an offer to perform a service, sell a product, trade, or conduct some other business venture. An offer is valid so long as it is serious (i.e. not said in jest), and has not been revoked by the offeror (i.e. “I hereby withdraw my offer”).

    2.Acceptance

    The party to whom the offer was made must now agree to the terms of the original offer. Any conditional acceptance or inclusion of additional terms is called a counter-offer. A counter-offer is in effect a rejection of the original offer, and it starts the contract formation process all over again. Just like for an offer, an acceptance must also be serious.

    3.Consideration

    Contracts are not binding unless something of value is exchanged. Consideration can be in the form of money, a promise to perform an act or refrain from acting, or it can be for some other item of value. The element of consideration is the whole purpose for entering into a contract. For the element of consideration, both parties must have some obligation under the contract; for example, one party pays and the other party performs.

    4.Capacity

    Each party must reasonably assume that the other party has both the legal right and the ability to fulfill their end of a contract. They must also be able to fully comprehend at the time of agreement what their obligations will be. For example, an intoxicated person (with some exceptions) or a minor (with some exceptions) lack the capacity to enter into an agreement because they do not fully understand the obligations that they are undertaking.

    The elements of a contract set forth above are applicable for both oral and written contracts. However, certain types of contracts are required by law to be in written form.

    Despite the technical legal enforceability of certain oral contracts, for practical purposes, parties should memorialize their contracts in writing. This will help avoid confusion, misunderstanding, and will aid with enforcement in the event of a breach. To determine whether or not your contract needs to be in writing, or if you need to draft a contract, you should consult with a knowledgeable contract attorney.

    Having an experienced contract attorney help prepare your agreement is the best way to protect your interests. For more information, or to have your agreement drafted or reviewed, please contact our office for a free consultation.

    Disclaimer: This blog is made available by Kloss, Stenger & LoTempio for educational purposes only. It is not intended to provide legal advice nor form any attorney client relationship between the reader and Kloss, Stenger & LoTempio. You should always seek professional advice from a licensed attorney for any legal questions you may have.

  • What is a Non Compete Agreement?

    What is a Non Compete Agreement?

    Non Compete or Non Competition Agreements are contracts that contain a restrictive covenant whereby an employee promises to refrain from competing against their employer for some period of time. Such agreements can be beneficial to both the employer and employee. Employers are likely to invest more in the training and development of the employee without fear of the employee leaving to work for a competitor. Employees are also likely to be paid more and receive greater professional skill development.

    However, employees should be very cautious before signing such agreements. Employers often draft the language of the restriction broadly for their own protection. Employers should also tread carefully as Courts will not enforce non compete covenants if they are unconscionable, offend public policy, or otherwise operate as a restraint of trade for the employee.

    A Non Compete Agreement is generally enforceable if it is:

    • Necessary to Protect a Legitimate Business Interest

      Will the employee have access to the employer’s trade secrets, customer lists, or some other form of proprietary information? Would that information be damaging to the employer if used by a rival? The employee must have the ability to harm the business of the employer with the information once the employment ends for it to be necessary.

      • Consider the uniqueness of the employee’s services. The more unique the services, the more likely it is that the covenant will be enforced. If the services are not unique, there is less need for a non compete covenant.
        • Are janitors, gardeners, or day laborers unique in their services? No. They are unlikely to possess company trade secrets through the normal scope of their employment.
        • Are executives, engineers, or software developers unique? Yes. They are likely to have access to company trade secrets and other proprietary information that would be damaging if used by a rival.

    • Reasonable in Scope

      The reasonableness inquiry is where the Court will evaluate the actual terms of the restrictions. They must be no greater than is justifiable to protect the employer. They also cannot impose an undue burden on the employee’s livelihood.

      • Reasonable in time: Does the agreement seek to prohibit the employee from competing forever? If so, the restriction is likely unreasonable absent unique circumstances, and thus unenforceable. So long as the length of time is reasonably related to the length of time that the secret remains valuable, it will likely be enforceable. In most cases, a restriction period of 6 months to 2 years will be upheld as reasonable.
      • Reasonable in distance: Does the employer seek to prohibit the employee from competing within 10, 20, or 30 miles of the employer’s business? Generally, the larger the geographic restriction, the less likely it is to be enforceable.
      • Reasonable in extent of restriction: Does the agreement prohibit the employee from working in his or her trade completely? If so, it is likely an unenforceable restraint of trade. Nonetheless, a temporary restriction from directly competing in a specialized area of the employer’s industry is more likely to be upheld.

    • Supported by Consideration.

      The employee must receive something of value at the time of execution. This is typically money, but may also be equity in the company. The employer should not seek to intimidate or attempt to put undue pressure on the employee to sign. This may lead to the subsequent invalidation of the restrictions, and nullification of the agreement. It is important to note that if the agreement is signed after the employee has been hired, simply continuing the employment does not constitute consideration and another item of value must be provided.

    Before signing a non compete agreement, you should have it reviewed by a knowledgeable contract attorney. For more information, or to have your non compete agreement drafted or reviewed, please contact our office for a free consultation.

    Disclaimer: This blog is made available by Kloss, Stenger & LoTempio for educational purposes only. It is not intended to provide legal advice nor form any attorney client relationship between reader and Kloss, Stenger & LoTempio. You should always seek professional advice from a licensed attorney for any legal questions you may have.