Having decided to sell your winery, you have hired a broker or adviser to help you market the property, circulated marketing materials to prospective buyers, and invited those buyers to submit an expression of interest. Having received various letters of intent, you have chosen the best offer and perhaps you have negotiated the terms. Now having signed a letter of intent, you decide it is time to call your lawyer to help you with the sale documentation. Right?
Unfortunately, this scenario is not unusual, but it does put the seller at a disadvantage in the sales process. A number of legal issues should be investigated and addressed prior to marketing a winery. If not addressed and corrected before the sales process begins, they can have a number of negative effects: a lower purchase price, less favorable terms, purchase price holdbacks, and sometimes even a failed transaction.
For this reason, we have compiled seven of the most common issues we have encountered over the years in our wine practice. Each of these potential problems should be addressed and corrected early in the process — and certainly before you take the property to market.
Before you do anything else, obtain a preliminary title report from a local title company for your property, and have your attorney review it. Check to make sure title to the property is in the correct name; if there have been mergers, name changes or other changes in ownership, consider what impact these might have on your ability to convey the property to a buyer.
In addition, you should ensure that there are no outstanding liens or any recorded deeds that should not be on title. If anything of this nature does appear, take the time to have the issue investigated and work with the title company to see if it is possible to have these items removed from the title report. Sometimes this may involve negotiating with a third party, or even initiating legal action to clear title. But whatever the resolution, it will almost certainly be easier to fix the problem before you put the property on the market.
Similarly, if there are any questions as to access to the property or the location of boundary lines, you should consider having a surveyor do some initial work to determine whether the improvements on the ground match the recorded legal descriptions. If you learn that your vineyard encroaches on your neighbor’s land, or you are missing an easement for a piece of the road leading to the winery, these issues are generally more easily negotiated with neighbors before the deal process begins.
2. INTELLECTUAL PROPERTY
Just as you should make sure that your ownership of the land is clear, you also should attend to the ownership of any intellectual property associated with the winery. If you have trademarks for your brand, you should verify that these trademarks are owned by the wine business and not by individuals or other related parties. Often, you will want to have all of the winery’s assets owned by the wine business itself; this means that individuals or other owners do not have to be parties to the contracts.
That being said, if the brand and the other assets are in different ownership, you will want to consider how to apportion any proceeds from a sale between the two in the most favorable manner. Whatever the ownership of the brand, you should consider the impacts of this ownership on the sales process.
Katherine Philippakis is a partner with Farella Braun + Martel LLP and chairs the firm’s Wine Industry practice group. She is based in the firm’s St. Helena office.
Karen Yuen is a partner in the Business Transactions practice and is based in the San Francisco office.
Vine Notes (nbbj.news/vinenotes) is a regular column by Rabobank, Farella Braun + Martel and Heffernan Insurance Brokers on wine business topics.