Nominating a Purchaser when signing an Agreement

A vendor signed a contract to sell his business, with the purchaser signing in their individual name.  A month later, once the agreement was unconditional, the purchaser then advised the vendor that they were ‘nominating’ a company they had set up to purchase the business.  The vendor wasn’t sure if this was legal, so checked with her lawyer.

Both the standard Agreement for Sale and Purchase of a Business and Agreement for Sale and Purchase of Real Estate allow a purchaser to “nominate” another entity to carry out the purchase on their behalf.

This means that sometimes purchasers will sign Agreements in their own personal name and then nominate a company or a trust, or indeed another individual to carry out the purchase.  This is essentially an ‘assignment’ of the purchaser’s rights.

As a purchaser this means you assign the benefit of the agreement to the new purchasing entity, however as a vendor your rights and obligations apply to both the person/entity who is nominated and the person/entity who did the nominating (the assignor and the assignee).  It is therefore usual practice for the vendor to be advised of the nomination.  This gives them notice that rights will apply to both the assignor and the assignee.

If you want to entirely remove the rights of a party to claim against the other or have any liability in relation to the transaction, this is done by way of a novation of a contract.  In this case, the other party to the contract needs to consent to the novation.

If you are nominating, assigning or novating a contract, it is essential that you take legal advice, to make sure you are aware of where you rights and duties will lie.