Buying a business can be exciting – but it’s also full of hidden risks that may not surface until after the deal is done. Without legal guidance, what looks like a bargain can turn into a financial drain or legal dispute. Here are four scenarios demonstrating common traps we see too often, how they could have been avoided, and what role a lawyer plays in protecting the buyer.
1. The Vendor Didn’t Disclose Key Information
What Happened:
A purchaser took over a motel business that had just been established, not realising that the motel only had resource consent to operate 12 accommodation units instead of the 24 erected.
What Went Wrong:
The sale and purchase agreement lacked proper vendor warranties. Due diligence missed the consent issue. Misrepresentation by omission was proven, but a 12-month court battle was necessary to obtain relief.
How a Lawyer Helps:
Lawyers draft warranties requiring full disclosure and carry out due diligence, including reviewing consent documents and ensuring that the purchaser receives the full benefit of the business being transferred.
Related Case: Thompson v Vincent [2001] 3 NZLR 355 (CA). In this case, the purchasers relied on representations that all accommodation units forming part of the business sale were lawfully consented. They weren’t. The Court held that even without deliberate dishonesty, silence or omission in the face of clear expectations could amount to misrepresentation. Buyers should protect themselves through tailored warranties and due diligence.
2. Assets Were Still Under Finance
What Happened:
The buyer paid for equipment and fit-out thinking they now owned everything outright. A few weeks later, a creditor repossessed key café gear that was still under a secured loan.
What Went Wrong:
No one checked the Personal Property Securities Register (PPSR). The contract didn’t include a condition requiring the vendor to discharge securities.
How a Lawyer Helps:
A lawyer searches the PPSR, negotiates clear conditions for security releases, and checks settlement statements to ensure assets are free of encumbrances.
Related Case: Partners Finance & Lease Ltd v Richmond Business Trust [2019] NZHC 2373 – a finance company leased a bulldozer under a hire purchase agreement and registered its interest on the PPSR. The lessee later sold the bulldozer to a third party (the Trust) without disclosing the existing finance. The High Court upheld the finance company’s right to repossess the bulldozer because the security interest remained registered. The Trust’s failure to search the PPSR meant it acquired the asset subject to the existing encumbrance. This case highlights the critical importance of searching the PPSR before purchasing valuable business assets – ownership does not defeat a registered security.
3. Restraint of Trade Didn’t Hold Up
What Happened:
A business owner sold her hair salon with a vague restraint of trade clause and opened a new salon nearby three months later. The buyer tried to enforce a restraint but failed.
What Went Wrong:
The restraint clause was too broad and lacked clarity around scope, geography, and timeframe.
How a Lawyer Helps:
Lawyers craft restraint clauses that are precise, enforceable, and tailored to the specific risks of the transaction.
Related Case: Skids Program Management Ltd v McNeill [2011] NZHC 1002 – the Court declined to enforce a restraint of trade clause against a former franchisee where the clause was found to be unreasonable in duration and scope, and where the franchisee had not personally signed the necessary guarantee. This case highlights that restraints must be clearly agreed to, proportionate to the interests protected, and not contrary to the public interest.
 4. The Lease Was a Liability
What Happened:
A purchaser assumed they’d take over the lease of a retail space as part of the sale. But the landlord refused consent due to poor financials, and the buyer had the business but no premises to trade from.
What Went Wrong:
Lease assignment wasn’t a condition of the agreement, and seeking the approval of the landlord became an afterthought.
How a Lawyer Helps:
Lawyers review lease terms, make assignment conditional, and negotiate landlord approvals before a deal becomes unconditional.
The cost of a lawyer is nothing compared to the cost of getting it wrong. Business sale and purchase agreements, leases and supply contracts are technical documents. Buyers who engage legal support early help deals run smoother and reduce the risk of post-settlement disaster.
