Question 12
Angela owned and operated a hotel business in North Shore. The hotel provided a range of
services: accommodation, public and lounge bars, a restaurant and bar food sales, and a wholesale
liquor store. The business did not do well and Angela contacted Heartland Realty Limited
(“Heartland”) to sell the business on her behalf. Heartland is a commercial real estate agency. Becky
was the agent in charge of the sale.
From March 2017, 12 construction workers lodged at the hotel, occupying most of the
accommodation. More importantly, the hotel became the social centre for many of the construction
workers and their spouses. The construction workers substantially boosted the revenue of the hotel
from accommodation, meals, and liquor sales. Angela knew that the construction would end in
October and it was much better to sell the business before then.
Leisure Limited (“Leisure”) owned and operated 10 hotels throughout New Zealand. It expressed an
interest in buying the business from Angela. Angela prepared a summary of the turnover figures for
the period from March to August 2017. The summary showed the average weekly turnover for that
period was $30,000, which was true and accurate. Angela also provided projected turnover for the 12
months after the sale of the business. The forecast was largely based on the turnover figures from
March to August 2017.
Becky gave the summary and the forecast to Leisure. She also showed Leisure’s representatives
around the hotel, during which she briefly mentioned the construction matter. She said something to
the effect that “only 4 or 5 construction workers booked the accommodation in the hotel. They do not
eat or drink here. The turnover is coming from regulars and the construction workers contribute very
little.”
Leisure liked what they saw and heard. On 30 Sep 2017, they entered into the agreement to
purchase the business for $600,000. The summary and the forecast were not part of the agreement.
The agreement contained Clause 16: “the Purchaser enters into this agreement relying upon its own
judgment and not on any representation or warranty made by or on behalf of the Vendor except as
expressed in this agreement”. This clause was added to the agreement at Angela’s request in the last
minute just before the signing.
Shortly after they entered into possession in the middle of October 2017, it became apparent that
there was a serious turnover problem (the construction workers had left the hotel in the beginning
WORD LIMIT: 400-700 words