Breach of contract occurs when one party fails to meet their obligations under the asset purchase agreement which can result in financial loss and legal disputes. This can happen when a seller doesn’t deliver the agreed assets or a buyer doesn’t pay as agreed.

For example, a buyer agrees to buy a restaurant’s kitchen equipment as part of the deal. The asset purchase agreement states that all equipment must be in working condition at the time of transfer. But after the transaction is complete the buyer finds out that several key appliances are broken and unusable. The seller refuses to repair or replace them saying it was “as-is” despite the contract saying otherwise.

To avoid or resolve these disputes the agreement should include clear language around asset condition, inspection rights and remedies for breach. The buyer can request a final inspection before closing and include a provision to withhold payment or seek reimbursement if the assets are not as described. If a breach still occurs mediation or arbitration clauses can help resolve the issue without going to court.

Misrepresentation or fraud occurs when one party provides false or misleading information about the assets being sold and the other party enters into the agreement under false pretenses. This can be overstating the value of assets, hiding liabilities or not disclosing critical issues that affect the transaction.

For example, a buyer buys a manufacturing business based on financial statements provided by the seller. The statements show strong revenue and profitability but after the deal is closed the buyer finds out the seller inflated sales figures by recording fake orders. The business is worth much less than represented and the buyer suffers financial loss.

To avoid this the asset purchase agreement should include strong representations and warranties requiring the seller to confirm all financial statements and disclosures are accurate and complete. The buyer should also do thorough due diligence reviewing financial records, contracts and customer data. Including indemnification clauses in the agreement can give the buyer legal recourse to recover damages if fraud is found.

Disputes over asset ownership or liens occur when a buyer finds out the seller doesn’t have clear title to the assets being sold or third parties have claims against them. This can result in legal battles, financial loss or the buyer losing access to the purchased assets.

For example, a buyer agrees to buy the equipment and inventory of a retail business assuming they are free and clear of any debts. After closing a creditor contacts the buyer saying the seller had outstanding loans secured by the inventory. Since the debt wasn’t paid off before the sale the creditor has the right to repossess the inventory and the buyer is left without the business assets.

To avoid this the buyer should do a UCC lien search and verify ownership records before closing. The asset purchase agreement should also require the seller to provide representations and warranties that the assets are free of liens or encumbrances. Including an indemnification clause will make the seller responsible for any undisclosed claims and protect the buyer from unexpected liabilities.

Failure to disclose material information occurs when a seller doesn’t disclose critical information that affects the value or use of the assets being sold. This can result in unexpected costs, legal issues or operational disruption for the buyer after the deal is closed.

For example, a buyer buys a small manufacturing business assuming all environmental permits are in place as the seller never mentioned otherwise. After the deal is closed the buyer finds out the business is out of compliance with environmental regulations and is facing fines and shut down orders. Fixing these issues will require legal fees and compliance costs that will reduce the value of the purchase.

To avoid this the asset purchase agreement should require the seller to disclose full information about regulatory compliance, legal disputes and any other material issues. The buyer should do due diligence reviewing permits, pending litigation and government records. Including indemnification clauses will also protect the buyer by making the seller responsible for any undisclosed issues that arise after the sale.

Post-closing disputes occur when disagreements arise after the deal is closed, often due to different interpretations of the contract, unmet obligations or unexpected liabilities. These can result in costly legal battles and business disruption.

For example, a seller agrees to an earn-out provision meaning they will get additional payments if the business meets certain revenue targets after closing. The buyer later claims the targets weren’t met while the seller says the buyer changed the business operations to reduce revenue and avoid making the additional payments. With no process in place to fairly verify earnings both parties end up in a legal dispute.

To avoid this the asset purchase agreement should clearly outline all post-closing obligations including how financial metrics will be measured and verified. Dispute resolution mechanisms like mediation or arbitration clauses will provide a process to resolve disputes without going to court. Documentation and third-party verification will also ensure both parties fulfill their agreed upon responsibilities.