Corporate & Commercial 16 November 2021

Changes to the Food Act: What food business purchasers should know

Purchasers of restaurants, cafes and food premises should be aware of recent changes to Food Premises Registrations which mean that purchasers can no longer receive a transfer of the Food Premises Registration when purchasing a food business.

On 1 July 2021, amendments the Food Act 1984 (Vic) (the Act) were implemented, which varied the process for Food Premises Registration to be obtained as part of the sale and purchase of food business.   A Food Premises Registration is required for most businesses that sell food or drink for public consumption, including cafes, restaurants, takeaway shops and food vans.

Prior to 1 July 2021, when purchasing a restaurant, café or other food business, a purchaser would usually obtain a transfer of the Food Premises Registration from the vendor at settlement.  However the changes introduced now require a purchaser of a food business to make an application for a new Food Premises Registration, instead of obtaining a transfer.

Whilst the change may not sound significant as purchasers can make their own application for a Food Premises Registration, under the Act and associated privacy laws, a Council cannot deal with an application for a food premises registration where the applicant is not the registered proprietor of the business at that time. The effect of this change is that a Council will not deal with an application for Food Premises Registration prior to settlement.

This means that from the time settlement is completed until the date the Council deals with and approves the Food Premises Registration, the business will not have the required Food Premises Registration in place.  This is a significant practical issue which appears to have been overlooked when the recent amendments were introduced.

What is the impact of this amendment on purchasers?

The effect of the changes is that a purchaser will now be buying a food premises without a critical registration required for its operation.

Previously the Food Premises Registration held by the Vendor was transferred simply by completing the applicable form and payment of the relevant fee as a condition of settlement, providing more certainty to purchasers that the required permit was in place and would be transferred immediately upon settlement.  Further, purchasers had the option of a pre-settlement inspection by Council, meaning Council would inspect the premises and identify all non-compliance issues to be addressed prior to the transfer, usually to be undertaken by the vendor subject to the contractual terms agreed between the parties.

The new process means that if the fresh application for the Food Premises Registration is not granted to the purchaser by the Council post settlement, the purchaser will own a food business which does not hold the required permits for operation, having purchased the business on the assumption it would be an operational business producing an income promptly upon settlement.  Whilst this outcome is unlikely for the majority of registered food businesses where the purchaser has complied with all requirements in the application process, it is a risk that purchasers will take on.

These amendments to the Act and this new process also place a purchaser in a difficult situation where they do not have a critical registration in place to legally operate the business from the time of settlement until such time as council grants the new Food Premises Registration..

The practical result for purchaser’s post settlement is that purchasers generally will have to choose between the following options:

  1. Closing the food business until the Food Premises Registration has been obtained which may have a significant impact on the business cash flow and goodwill where there is a delay in the Food Premises Registration being granted; or
  2. Operate the food business without a Food Premises Registration between settlement and the date the Food Premises Registration is approved.

There are two significant risks to a purchaser who elects to take this step:

    1. Despite the amendments made to require a new Food Premises Registration be obtained by a purchaser of a business, the Act has not been updated to make allowances for the interim period, and as such to operate a business during that time puts a purchaser in breach of the Act and at risk of being subject to enforcement proceedings and penalties; and
    2. Insurance policies often require that all permits, licences and registrations are in place and remain valid for the period of the insurance cover.  As such, a purchaser operating without a Food Premises Registration may risk their insurance not providing coverage for any incident which takes place during that the period they are operating without their Food Premises Registration.

While likely aware of the issue, to date, neither the Victorian government nor the local councils have put in place publically available policies to assist or give guidance to purchasers in respect of this specific issue.  Without a formal written policy in place or a change to the legislation to deal with this interim period, purchasers cannot comfortably or legally operate without a Food Premises Registration in breach of the Act.

What can a purchaser do in this situation?

While our advice to clients is always to comply with and act within the scope of all relevant laws, we understand that from a practical perspective, many purchaser will have substantial concerns about closing a business for an unspecified period to await approval of a Food Premises Registration and may wish to consider alternative options.

There are a number of steps a purchaser can take which may assist them to make a decision about how to proceed:

  1. Contact your local Council’s Environmental Health Department to discuss the purchase.  They may be able to provide further information and assistance on the basis of your individual circumstances and the relevant Council position;
  2. Make your Food Premises Registration application as early on in the process as possible.  While the relevant Council will not deal with the application until after settlement, they will likely be able to make arrangements for an inspection to be conducted as soon after settlement as possible, to minimise the delay for you;
  3. Speak to your insurance broker to determine your obligations in respect of your insurance coverages; and
  4. Seek legal advice and assistance in respect of your rights and obligations in your own personal circumstances in connection with your purchase.  This will give you a clearer idea of your risks and how to proceed.

How can Coulter Legal assist you?

A purchase of a business can be a very exciting time, as you take a new step as a business owner.  We acknowledge that it can also be a very stressful time, and that issues like the one described above can add unnecessarily to this stress.

We are able to guide you through the process of buying or selling a business, step by step, assisting you from the early stages of negotiation to the settlement and finalisation of the sale, to help you get back to business sooner.

Alicia Carroll.
Alicia Carroll Principal Lawyer Risk Manager | Corporate & Commercial View profile
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