The author recently has been involved in several transactions involving the sale or purchase of businesses in the industry. One of the requirements of any transaction is the representation by the seller that all of the contracts and forms used in the business are in compliance with the laws. Of course a seller will only want to represent that it is to the best of their knowledge the contracts and forms are in compliance. A buyer, however, wants an unlimited representation to be sure there will not be any future problems with consumers or a state regulatory agency.
Whether you are planning on continuing to operate the business or selling, one of your resolutions for the upcoming New Year should be to review and update all of the forms that you use in your business. Of course, state and federal laws and regulations require some of these forms. Typically a form that is required must also comply with the format, type sizes and contain the disclosures required by the law or regulations.
All industry members should review the at need forms that they customarily use. The first step is to review the laws and regulations that apply to your business and require forms. If an industry member sells on a pre-need basis they should review the pre-need laws that apply in their states. These laws are sometimes revised by a state legislature, so there may be some recent changes that go into effect in the upcoming year. There usually are different requirements in cemetery and funeral pre-need laws so that industry members that engage in both segments should be careful to comply with the applicable laws and regulations.
Illinois, for example, has two separate pre-need laws. These laws are similar to laws in other states. The Illinois Preneed Cemetery Sales Act (“Sales Act”) applies to cemetery pre-need sellers and the Funeral or Burial Funds Act (“Funeral Act”) applies to pre-need funeral sellers. Some licensees sell products and services that are covered by both laws. The Sales Act requirements are substantially as follows:
- The contract must be in writing and in 11-point type except that some of the disclosures must be in 12-point type;
- The contract must state the name and address of the seller and the provider and the relationship between the seller and provider;
- All contracts entered into under the Sales Act must be guaranteed and there is a specific disclosure that must be in the contract;
- The contract must disclose any penalties and restrictions;
- The contract must disclose how if the merchandise, spaces and services purchased are not available at the time required, the seller must provide merchandise, spaces and services that are similar in style and equal in quality.
- If the contract allows the seller to deliver the merchandise to a bonded warehouse or install on site as provided in the Sales Act, then specific disclosures must be in the Contract.
- The contract must disclose the relationship among the entity funding the preneed funeral contract, the provider and the seller.
- The Seller must explain the terms of the Contract before it is signed and a purchaser must confirm they received the explanation.
The Funeral Act requirements are substantially as follows:
The contract must be in writing and in 11-point type, except that some of the disclosures must be in 12-point type;
- The contract must state the name and address of the seller and the provider or that the provider will be selected at the time the services and merchandise are provide;
- The contract must state whether the contract price is guaranteed or not guaranteed;
- The contract must disclose any penalties and restrictions;
- The contract must disclose how if the merchandise, services purchased are not available at the time required, the seller must provide merchandise and services that are similar in style and equal in quality of material and workmanship.
- The contract must disclose how the preneed funeral contract will be funded;
- The contract must disclose the relationship among the entity funding the preneed funeral contract, the provider and the seller.
- The contract must disclose the method of changing or selecting the designation of a provider; and
- The contract must disclose the impact on the purchaser if there are (i) changes in the funding mechanisms; (ii) penalties for failure to make payments; (iii) penalties resulting from cancellation; and (iv) information on obligations or entitlements if there is a difference between proceeds of the funding arrangement and the actual cost needed to pay for the merchandise or services at need.
Both Acts require a Seller to distribute an explanatory booklet that has been prepared by the Illinois State Comptroller’s Office and is available to Licensees. Both Acts also require a Seller to explain the terms of a Contract and it is required the consumer confirm they have received this information by initialing a statement in the contract.
If you are selling on a preneed basis and allowing a consumer to pay in four or more installments, even if interest is not charged, most state consumer credit laws and the Federal Credit Law requires that specific disclosures be made.
The failure to comply with the requirements of these various laws and regulation can cause a contract to be voidable and also subject a seller to penalties. Some state associations have written material that is available to members or can be purchased that explains the requirements of some of these laws. Complying with other laws may require a consulting a lawyer for assistance.
Since the laws of the states can differ, every reader should check the laws and any regulations issued in their own state to determine if any special requirements apply to their businesses. It has been the author’s experience that the failure to comply can be expensive as a buyer might reduce the price paid for a business because of violations. Also if there is a complaint filed against a business it is standard practice for a regulatory agency to review the documents to make sure they are in compliance with any requirements of state and federal law.