Dispute over fees after buying a practice

I bought a practice from a retiring accountant and I am disputing the fees I was supposed to receive

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I purchased a practice last year and i am due to make my second instalment to the previous owner. The contract states that I pay 50% on completion (which I did) and then two further installments each of 25%, but on the last instalment I can clawback any fees not collected.

My issue is the fees are way below what I thought I was buying. This is laregly due to a few large clients not coming over to myself and in effect leaving from day one/two after I had bought the business. I am left with fees which are approx. 60% what they should have been.

I have already paid 50% with my first instalment and if I pay the next instalment of 25% I will have paid 75% but I'II only receive 60% of what I thought I was buying. So I will be out of pocket.

I already know the final instalment will not be paid, but my question is if I am contracted to pay the next instalment of 25%, but I know this will be overpaying him can I refuse to pay some of the next instlament based on the fact that it has already become aparent that the fees are not what I thought they would be? I will pay him what I expect the fees will be and will tally up at the end, but it doesn;t seem right to pay for something I know I'm not going to get.

Any advice would be welcomed.

Replies (22)

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By Tax is always taxing
03rd Feb 2023 10:37

This is a legal question, not an accounting one, contact the lawyer you used for the agreement

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Replying to Tax is always taxing:
RLI
By lionofludesch
03rd Feb 2023 11:15

Tax is always taxing wrote:

This is a legal question, not an accounting one, contact the lawyer you used for the agreement

Agreed. Nothing to do with accountancy - this is a legal matter.

Although I do sympathise ......

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By nrw2
03rd Feb 2023 10:59

Marsh1 wrote:

my question is if I am contracted to pay the next instalment of 25%, but I know this will be overpaying him can I refuse to pay some of the next instlament

If you are contracted to pay something, then you typically cannot refuse to pay it. If your contract says you only have to pay it 'if...' then that's different. You have to pay whatever your contract says.

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By paul.benny
03rd Feb 2023 11:04

Were there any warranties or other undertakings on the clients coming across to you?
Or provisions to adjust the price if some clients walked away?

Maybe you need to be talking to the lawyer who acted for you on the purchase agreement (you did use a lawyer?)

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A Putey FACA
By Arthur Putey
03rd Feb 2023 11:15

Caveat emptor! What does the contract say? What would you be saying if the client base you bought turned out to be a goldmine and you got double the expected turnover?

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Replying to Arthur Putey:
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By I'msorryIhaven'taclue
03rd Feb 2023 13:08

Concur, this will depend almost entirely on what the contract states (and perhaps, to a lesser extent, on what it means; any such interpretation is the function of a solicitor).

Marsh1 wrote:

..my question is if I am contracted to pay the next instalment of 25%, but I know this will be overpaying him can I refuse to pay?

OP, if I may draw a distinction between safe ground and thin ice: let's suppose your contract specified an anticipated turnover of fixed amount (so let's say £50k) then there's a world of difference between a clause that states:

"(pay) 25% of anticipated turnover" and one that states "(pay) 25% of anticipated turnover of £50k".

There will possibly exist contradictory clauses too, so that your solicitor will need to decide which in a court's eyes would be the superior clause.

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By rmillaree
03rd Feb 2023 11:17

"This is laregly due to a few large clients not coming over to myself and in effect leaving from day one/two after I had bought the business. I am left with fees which are approx. 60% what they should have been."

Seems like your expectations from this deal were too high ? cant se how thats any fault of the seller. What did the contract say with regard to leavers ? - if you paid fixed fee surely you must have known an unknown % would leave and that was "your risk" going ahead with the deal.

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By petersaxton
03rd Feb 2023 11:59

I have always thought selling/buying a practice would be full of risk.
If I was using an accountant I liked and I was suddenly presented with somebody else I would consider my position. This must be why some firms make the change a lot more slowly and smoother.

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By Roland195
03rd Feb 2023 12:18

If a couple of bigger clients represented 40% of the total fees of the practice you bought, why was the risk of them not continuing with you addressed, particularly as they appear to have already had other arrangements in place.

What does your lawyer say?

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Replying to Roland195:
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By I'msorryIhaven'taclue
03rd Feb 2023 13:27

Roland195 wrote:

What does your lawyer say?

"Brush up on your people-skills!"

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Replying to Roland195:
By ireallyshouldknowthisbut
03rd Feb 2023 13:39

Roland195 wrote:

If a couple of bigger clients represented 40% of the total fees of the practice you bought, why was the risk of them not continuing with you addressed, particularly as they appear to have already had other arrangements in place.

What does your lawyer say?

Given the radio silence from the OP I imagine the lawyer says "you should have hired me before you signed this rubbish you drafted yourself from Rocket Lawyer"

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Replying to ireallyshouldknowthisbut:
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By I'msorryIhaven'taclue
03rd Feb 2023 14:26

Ha ha, yes.. unless of course his lawyer is Rocket Lawyers!

On their site its page title is "Free Online UK Legal Advice".

Top of the page: "Affordable Legal Advice".

Further down In the page's smallprint: "Our lawyers will typically charge around £250+VAT per hour, which can be discounted by a further 33% or a fixed fee if you are on a Premium Plan."

Might be cheaper for the OP to cough up the 25% instalment!

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By meadowsaw227
03rd Feb 2023 13:25

I am currently going through the (exceedingly painful) process of selling my practice and being an honourable person told the prospective buyers of a problem with three of my biggest fees circa £30k and I have taken them out of the mix.
To be possibly looked at at the end of year 1 if they are still there.
I'm not bothered about the money, it is about making sure my clients are looked after.

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Replying to meadowsaw227:
By Moonbeam
05th Feb 2023 18:41

From what others have told me about selling a practice you've been very sensible here, and that should impress a purchaser.

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By Calculatorboy
03rd Feb 2023 13:37

With benefit of hindsight its good to get clients to sign contract with purchaser for following year say at 10% discount to last fee ..might reduce the clawback and once they are in client lethargy rules for following years

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paddle steamer
By DJKL
03rd Feb 2023 13:41

The devil with all contract negotiations is thinking out all the "but what if x happens" scenarios, and wording the stage payments to allow for this.

If drafted/negotiated using a solicitor acting for you then go back to that solicitor and ask why this possibility is not covered within the contract or if it covered what is it you may now do/ not do?

If no solicitor used then you possibly, and I do not say this unkindly, are similar to those who come on A Web because they wish to say DIY their accounts and tax.

Constructing contracts that work is something that tends to require wide commercial experience, the drafter has in his/her past seen a lot of the issues that can and do arise , fewer unknown unknowns so to speak; solicitors tend to have this wide experience whereas us accountants generally do not.

A good rule of thumb I have developed is to follow the money re obligations and rights and examine the remedies at each point through the process, especially where the rights and obligations endure over a protracted time period, risks and dangers re non performance often increasing over time.

I too do have sympathy but know, from my extensive work experience with leases and property purchases and sales, that only the simplest/least valuable agreements ever ought to be attempted in house. (And as I have posted before mistakes can still happen , even sometimes when a solicitor is used)

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By bigdave1971
03rd Feb 2023 14:01

I think we all assuming the worst in that this is a legal problem and solicitors will have to get involved, etc.

Have you brought up the subject with the seller? You could point out ...

"as per our agreement the final payment includes the clawback element but at the moment the clawbacks exceed the final 25% so I could pay the next contracted instalment now but then that would leave you having to repay me the difference on the final payment date and I'm sure you wouldn't want to do that!" I suggest I deduct the clawbacks from the imminent payment to save you the bother."

You never know, he/she could agree and you are worrying about nothing ... if they don't then you rethink your options.

Even if that is agreed, could there be further potential clawbacks between the second and third contracted payment dates?

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Replying to bigdave1971:
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By raju m
07th Feb 2023 10:38

I think that is the right advice. Best to get a response from the seller. Raj

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By bernard michael
04th Feb 2023 09:46

What does the contract say ?? That's what you've agreed to

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By More unearned luck
06th Feb 2023 11:14

Although the first word of your question is 'dispute', there is no further mention of any dialogue between you and the vendor. Have you asked what he will accept?

If the contract says what you say it says then you were unwise to have assumed that the fees wouldn't fall below 75%.

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Ben Steele
By Ben Steele
07th Feb 2023 09:19

Did you not have a clawback clause in to protect you from this risk?

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By Leigh Caldwell
07th Feb 2023 09:36

If the wording is as you’ve described, I would be less certain than you about even the final instalment. A court might consider “uncollected fees” to refer to bad debts, not clients who have left.

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