Resources
Are you considering selling your rent roll? Traditionally, the agency rent roll is the major asset of any real estate business other than its staff. The value of the rent roll is dependent on several variables that need careful consideration both by the seller and by the buyer. Conventionally, the value of a rent roll is assessed as a multiple of annual property management commissions and is influenced by a number of factors including: • Ratio of landlords to properties under management • Commission fees charged for management • Letting & reletting fees • Geographical spread of properties under management • Retention period of existing clients • Desirability of the properties under management • Ratio of residential properties and commercial properties • The seller’s software used to manage the properties (age, reliability, reporting capabilities) whether it is capable of being merged with the buyer’s software or the ease of data transfer from one to the other • Vacancy rates (past & present) • Rental arrears (past & present)
The buyer must consider: • Funding the purchase of the rent roll • Transition period to the new entity and assignment of the authorities • The lease for the existing premises and whether to take it over, run the business from their current premises or lease new premises • Retention clauses (period of noncompete restraint of trade), adjustments in price and time frame for existing landlords to transition to the new managing agency
• Forensic analysis of profit & loss statements, balance sheets, business activity statements and other key financials • The option and implications of taking on existing staff who are willing to transition The sale of an existing rent roll is usually GST free on the basis the sale is of a ‘going concern’ and must be running at the point of sale and continue trading after settlement.
Legal issues and consequences: The contract of sale of business or heads of agreement must be prepared by a competent Business Law Specialist. Take into account the following: • Confidentiality agreements and nondisclosure statements must be signed and exchanged before any information is discussed or passed on to the buyer or third party interests • Assignment of lease or variation of terms of the existing lease • Licensing obligations, trademark, copyrights, business name, franchise agreements, tangible & intangible assets • Drafting special conditions intended for the contract of sale of business or heads of agreement • Employment agreements • Regulatory obligations pursuant to
the Estate Agents Act/Regulations and Corporations Act REIV leasing and/or managing authorities include an embedded assignment clause. The assignment clause streamlines the sale and relieves the buyer and seller from the laborious task of contacting existing landlords and re-assigning new authorities. If REIV leasing/management authorities are not being used, they may not include an assignment clause. For more peace of mind, you can also check if the seller/buyer is a current financial member of the Institute. This can be done by checking the REIV website or writing the REIV Membership membership@reiv.com.au Common mistakes made by buyers and sellers is ignoring or failing to secure professional advice from: • Business Law Specialists • Accountants • Business Brokers The buyer will pay a premium to the seller for the right to earn current and future income from the existing rent roll without deduction or shrinking of the database over a period of time. The Estate Agent – April 2022 | 33
