When selling a service station, whether the business itself or the land it sits on, there are a number of unique and specific considerations which should be addressed by the owner in addition to the usual matters associated with selling a business or commercial property.
In this article, we set out the top considerations to cover off on when preparing to sell a service station.
1. ENVIRONMENTAL PROTECTION AND CONTAMINATION
IS YOUR SITE LISTED ON THE CONTAMINATED LAND OR ENVIRONMENTAL MANAGEMENT REGISTER?
Operating a service station is, in many cases, a ‘Notifiable Activity’ within the meaning of the Environmental Protection Act 1994 (Qld) (EPA). If your particular service station falls within this definition, the land will be recorded on the Environmental Management Register (EMR) (if it is not, you should ensure that the administering authority is notified in accordance with your obligation to do so under the EPA).
Before entering into a contract for the sale of land which is listed on the EMR, the seller is required by section 421 of the EPA to give the prospective purchaser a notice in writing that the property is recorded in the EMR.
This obligation to give notice under section 421 also extends to the following circumstances:
- Where the land is recorded in the Contaminated Land Register (CLR);
- Where the land is subject to a notice from the administering authority under section 373 of the EPA informing the owner that the administering authority believes the land has been, or is being, used for a notifiable activity or is contaminated land;
- Where the land is the subject of a notice to conduct or commission a site investigation;
- The land is subject to a remediation notice; or
- A notice that the administering authority is preparing, or requiring someone else to prepare, a site management plan for the land; or
- The land is the subject of a court order under section 458 to carry out work on the land for the prevention or remediation of environmental harm, conduct a site investigation or to secure compliance with an environmental authority, environmental management or site management plan.
Failure to give this notice will entitle the purchaser to terminate the contract under section 421 of the EPA any time before the earlier of settlement or possession by the purchaser.
IS A SOIL TEST LIKELY TO YIELD RESULTS OF CONTAMINATION?
It is common for purchasers of service stations, whether the business or the land, to ask for the contract to be subject to a soil test.
If you have reason to believe that the land may be contaminated, it may be worthwhile investigating that matter prior to putting the property or business up for sale. In doing so, you will both be able to satisfy the purchaser by providing a copy of a recent soil test, and you will avoid any surprises and unforeseen expense during the contract period.
2. TANK AND LINE TESTING
Purchasers of service stations will usually want to ensure that the tanks and fuel lines are functioning properly and are not defective or leaking.
It is a common request for any sale contract to be subject to a satisfactory tank and line test.
Before listing your service station for sale, if you have any doubts about the soundness of the fuel tanks and lines, you may wish to consider having these tested yourself. Not only can the equipment itself be an issue for a purchaser, if a fuel tank has been leaking there is a much higher likelihood that the land itself may be contaminated. If this is the case, you will have separate reporting obligations under the EPA in any event.
3. LEASE TERMS AND EQUIPMENT OWNERSHIP
When selling either the business or land component of a service station, you should take special care to know what the terms of any existing lease are. Particularly with respect to which party, i.e. Landlord or Tenant/Operator, owns the above and below ground fuel equipment (including the tanks and fuel lines).
To avoid any problems under a sale contract, it is prudent to expressly inform the purchaser of what fuel equipment (if any) they will be purchasing. Take care not to represent that the purchaser of land will own, for example the above ground fuel equipment, if this in fact belongs to an existing Tenant.
4. DOES THE SALE PRICE INCLUDE IN-GROUND FUEL?
If you are selling a service station business, when calculating your required sale price you should take care to specify whether that price includes the in-ground fuel (i.e. if you intend for the business to be sold on a walk-in, walk-out basis) or whether a stocktake will need to be carried out.
The value of the in-ground fuel at the settlement date can often be substantial so this should be carefully considered, and if required, care should be taken to ensure that the estimated value in the contract is accurate.
When a stocktake is required for the sale of a service station, the estimated stock-in-trade amount can be split into ‘Wet’ stock (meaning fuel and other petroleum products) and ‘Dry’ stock (meaning the stock held in the shop itself).
5. FUEL SUPPLY ARRANGEMENT
If you are selling the business, what type of fuel buying agreement to you have?
If you have a current fuel supply agreement in place, it is a common term of these that the supplier must consent to an incoming purchaser. It is also not uncommon for these agreements to contain a first right of refusal for the fuel supplier to purchase the business.
Before signing any contract of sale for a service station, you should carefully review the terms of any contract you have with your fuel suppler and, if necessary, seek legal advice to determine what special conditions may be required.
For example, it may be the case that the sale contract must be subject to the fuel supplier’s consent and/or waiver of their first right of refusal. Failure to include these types of special conditions where necessary could cause contractual issues with either the purchaser or fuel supplier.