Addressing Legal Liabilities Before Going to Market

In short: How to Address Legal Liabilities Before Putting Your Business on the Market

Unresolved legal liabilities are one of the most common reasons a business sale slows down or falls through during due diligence. Reviewing contracts, employment matters, property, intellectual property and any live disputes before going to market reduces this risk.

What this article covers

Reviewing contracts and agreements
Employment and HR compliance
Property and lease obligations
Intellectual property and regulatory compliance
Litigation, disputes and historic liabilities
How this fits into wider due diligence preparation

Legal liabilities that surface during due diligence are a leading cause of delayed completion, reduced price and, in some cases, deals that fall through entirely. Buyers commonly instruct solicitors to review contracts, employment records, property arrangements, intellectual property and any disputes before committing to a purchase, and anything unresolved becomes a point of negotiation or a reason to walk away. Reviewing these areas before appointing an advisor or approaching buyers gives an owner time to fix problems rather than explain them under pressure.

Reviewing contracts and agreements

Key customer, supplier and financing contracts should be checked to confirm they are properly executed, currently in force, and capable of being transferred to a new owner without triggering a right for the counterparty to terminate. Contracts containing change-of-control clauses are a particular concern, since they can allow a customer or supplier to exit the relationship the moment ownership changes, directly affecting the value a buyer is willing to pay. Any contracts that are informal, expired, or missing signed copies should be regularised well before a sale process begins.

Employment and HR compliance

Buyers will examine employment contracts, staff handbooks, pension arrangements and records of any past or ongoing disputes, including grievances, disciplinary action or tribunal claims. Gaps in employment documentation, unresolved disputes, or inconsistent application of policies across staff are common findings that lead buyers to reduce their offer or ask for specific warranties and indemnities. Ensuring contracts are up to date and any historic issues are properly closed out removes a source of buyer concern before it is raised.

Property and lease obligations

Where the business occupies leasehold premises, the lease terms need to be checked for assignment or subletting restrictions, outstanding rent reviews and any deferred maintenance obligations, since these directly affect whether a buyer can continue operating from the same premises after completion. Freehold property held by the business should have clear, unencumbered title, with any charges or restrictions identified and, where possible, resolved before marketing begins.

Intellectual property and regulatory compliance

Trademarks, patents, licences and proprietary processes that underpin the business's value need to be properly registered, in the company's name rather than an individual's, and free of unresolved disputes. Businesses operating in regulated sectors should also confirm that all required licences and permits are current and that no compliance breaches remain outstanding, since a lapsed licence or unresolved regulatory issue can be treated by a buyer as a serious risk requiring specific protection in the sale agreement.

Litigation, disputes and historic liabilities

Any ongoing or recently settled litigation, whether with customers, suppliers, employees or regulators, needs to be disclosed and, where possible, concluded before a sale process starts. Buyers are far more comfortable acquiring a business with a clean recent history than one carrying live disputes, even where the amounts involved are modest, because unresolved litigation creates uncertainty about future cost and management time. Where a dispute cannot realistically be settled before completion, sellers should expect buyers to request specific warranties, indemnities or a price adjustment to reflect the risk.

How this fits into wider due diligence preparation

Legal liability review is one part of a broader due diligence preparation exercise that also covers financial records, tax position and commercial documentation, all of which buyers will examine in parallel. The guide to due diligence preparation sets out the full scope of what buyers typically review, and the guide to preparing a business for sale covers the wider preparation process beyond legal matters. Owners wanting a structured overview of the process from decision to completion should also see the business sale timeline guide, and further reading is available in the due diligence news archive.

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