Mostly yes, but not in the way people picture it. The client list is usually the thing a buyer is actually paying for, and sellers tend to assume it moves across at completion like a van or a stock room. It doesn’t. What you have is a mixture of data, contracts, confidential information and goodwill, each of which transfers (or doesn’t) under different rules. I’ve written before about how this works for client banks in financial services and accountancy, where there’s a regulator and often a network sitting in the middle. This piece is wider: any business with a list of clients or customers that has value.
You don’t own the clients, so what are you selling?
A client is generally free to go elsewhere the day after completion (unless tied into a long term contract, for example), and nothing in a sale agreement changes that. What you’re selling is the things that make it likely they won’t: the records, the contracts, the relationships and the reputation. Legally that breaks down into four separate assets.
The first is the data itself. If your clients are individuals or sole traders, the list is personal data and data protection law applies to its transfer. If they’re companies, the names and addresses aren’t personal data but the contact people are. The second is the contracts. The third is confidential information, which includes the list but also pricing, history, and the notes your team keep. The fourth is goodwill, which is the accounting word for the expectation that people will keep buying. There’s also a fifth, less well known: a list that’s taken real investment to compile and keep up to date may attract its own database right under the Copyright and Rights in Databases Regulations 1997, which is a property right and can be assigned to the buyer expressly. Most agreements I see don’t mention it. They should, because it gives the buyer a clean basis to stop a third party (or the seller) extracting and reusing the list later.
Client contracts don’t move on their own
In a share sale the company that holds the contracts is the company being sold, so nothing needs to transfer, though some contracts have change of control clauses that let the client walk. In an asset sale the contracts are between the client and you, and they don’t automatically become contracts with the buyer. There are two ways to move them. Novation replaces you with the buyer and needs the client’s agreement. Assignment transfers the benefit of the contract without consent, but not the burden, and many client contracts prohibit it anyway.
In practice most buyers ask clients to sign the buyer’s terms rather than wrestle with novating yours, and that has a useful side effect I’ll come to. Where the client relationship runs through a third party (a network, a platform, an agency agreement), you need that third party’s cooperation, and the earlier article covers the mechanics.
Data protection
The transfer of personal data from you to the buyer needs a lawful basis, and legitimate interests will normally do the job; buyers and sellers of businesses have an obvious interest in the business carrying on with its clients. The harder question is transparency. If your privacy notice never said client data might be transferred to a purchaser of the business, the transfer sits uncomfortably with what you told people, and the buyer has its own duty under Article 14 of the UK GDPR to tell each client where their data came from, within a month or on first contact. A joint letter before completion usually does this well enough, and it’s also the letter that keeps clients.
The second point is due diligence, which happens before any of that. Handing a prospective buyer your full client list so they can value it is itself a disclosure of personal data, to a party who may never buy. Anonymise or aggregate at the early stages (client A, £4,200 a year, twelve years’ standing), share names only under an NDA once heads of terms are signed, and make sure the buyer understands it becomes a controller of anything it receives.
The third is marketing. Consent to receive email marketing was given to you, not to the buyer, and under regulation 22 of PECR the buyer can’t rely on it. The soft opt-in only covers the organisation that sold the product in the first place. The ICO’s direct marketing guidance is clear on this and I’ve yet to meet a buyer who knew it. Service messages are fine; promotional email needs fresh consent. That’s the useful side effect of the buyer signing clients up to its own terms: it’s the moment to collect consent properly.
What the seller has to stop doing
A transfer only has value if the seller doesn’t keep a copy of the data. The agreement should say the seller will delete or hand over the list and any backups, will not use it, and will not solicit the clients for a defined period. Restrictive covenants in a business sale are easier to enforce than the same words in an employment contract, because the courts accept that a buyer paying for goodwill needs to protect it, but they still have to be reasonable in scope and length.
The people who most often keep a copy aren’t the seller, though. They’re the seller’s staff, who have the list in their phone contacts, their personal email or a spreadsheet they built for convenience. If those staff transfer to the buyer, that’s manageable. If they don’t, the buyer has paid for a list that a former employee can walk out with. I wrote recently about a case where an employee took over eleven thousand files before leaving to compete; the lesson for a buyer is to ask, during due diligence, where the client data actually lives and who has access.
What goes in the agreement
Buyers want the clients listed in a schedule, because the price and any deferred payment are calculated by reference to them. That’s fine, but a schedule to an executed agreement sits in two law firms’ files and both parties’ systems for years. Put in it what’s needed to identify the clients and operate the price: names, reference numbers, fee or revenue figures. Full contact details and history belong in a handover pack delivered at completion under a clause that says what the buyer may do with them. The seller’s private notes about clients (health, family situations, the things an adviser writes down to remember) shouldn’t be in a schedule at all. I had to say so recently on a deal where the draft schedule had a comments column, and nobody had thought about who’d end up reading it.
Beyond that, the agreement should assign the goodwill, the database right and any confidential information expressly; set out the data protection position honestly, including what clients have been told and who handles any complaint; and deal with retention. Deferred consideration tied to clients still being there in twelve months is the usual answer, and it’s fair to both sides provided the buyer doesn’t have a free hand to lose clients and then reduce the price.
On warranties, the seller will be asked to warrant that the client records are accurate, that the contracts are as described, and that its privacy notices permitted the transfer. Only give the last one if it’s true. I saw an agreement recently where the seller’s own disclosure letter admitted the privacy notice didn’t allow the transfer while the agreement asked for an unqualified warranty that it did. A warranty you’re in breach of at signing just converts a compliance problem into a claim.
If you’re thinking of selling
Update your privacy notice now, before you go to market, so that by the time a buyer’s solicitor asks, it has said for a year that client data may be transferred to a purchaser. Find out where the list actually lives and who has copies. Check your client terms for assignment and change of control clauses. And think about the client letter early, because a client who hears about the sale from you, with a clear explanation of what changes and what doesn’t, is a client the buyer is much more likely to keep, which is what they’re paying you for.
I help business owners of small and medium-sized businesses to sell their business – including selling client banks for businesses like IFA, Insurance Brokers, Accountants and other professional services. Get in touch if you need some help.
