Blog / Property Management
Greg Jemmeson, Legal Matters Selling Rent Rolls
What to do when selling rent rolls - seek good legal advice!
At the moment everyone is selling their rent rolls. In the fourteen years that Greg Jemmeson has been providing legal advice, he has never seen such a high volume of acquisitions and disposals of rent rolls and businesses as he has in the last six months.
Selling a rent roll however can have some unexpected thorns. Each jurisdiction has different obligations. It takes a lot of preparation to acquire or sell a rent roll and seeking out the right advice is imperative so you don’t lose out.
Greg says, “In some of the jurisdictions around Australia, a common practice has been that rent rolls are sold by way of assignment. Selling a rent roll by way of assignment is where there is a clause in your agency agreement which allows you to assign the rights to another real estate agent which means that you don’t have to go through the process of re-signing agency agreements.”
There is a problem with assignment clauses however. As Greg explains, “What we’ve found though is that a number of the major funders of rent roll acquisitions are no longer keen on these assignment clauses and will only lend on the re-signing of new agency agreements. So if you wish to sell your rent roll, you need to be aware that the way you are going to sell the business is markedly different from how it has been in the past.”
Greg says, “It’s the requirement that if you’re going to manage a property on behalf of a landlord, you have to have a proper written authority and how that authority is transferred to the purchaser of the rent roll varies from state to state under their legislation. However, if the funder is not going to fund on an assignment of a rent roll, you need to look at other ways of disposing of that rent roll and that, in tradition, has been the re-signing of agency agreements - and there is always a loss of between 5% and 10% in the average conversion.”
The solution that Greg has suggested to his clients is that, “If you wish to sell the rent roll without re-signing the agreements, one of the strategies we use is that principals set up an untraded entity, which obtains a corporate licence, and that entity signs up all of the agency agreements. However they’re managed through another trading entity. So what we’re doing is we’re having the rent roll owned in an untraded company and when we eventually get around to selling our rent roll, we sell the shares in that untraded company, therefore we get 100% conversion of the rent roll. And the banks are happy with this type of structure as well.”
As Malcolm Fraser once said, ‘Life wasn’t meant to be easy’ and that’s why it pays to seek out expert legal advice to come out on top.
← Go back
