A rent roll is essentially a real estate agent’s or property manager’s client base of rental property owners.
The sale of a rent roll is a more complex process than the sale or purchase of a small to medium sized business. A lawyer experienced in this area is essential.
There are some aspects of the sale of a rent roll which are different to a standard business sale:
- The purchase price is generally calculated on a goodwill multiple to the gross annual management income from the properties contained within the rent roll. The exact purchase price will only be calculated on the day of settlement based on the final number of properties still contained within the rent roll. This is because property owners might stop using the services of the seller before settlement, meaning those properties will be removed from the rent roll.
- Part of the purchase price is generally retained in a lawyer’s Trust Account at settlement for a set period of time. If all of the property owners are still clients of the rent roll at the end of that retention period, then the retention is generally paid to the seller in full. However, if any property owners have moved their business elsewhere or have otherwise been removed from the rent roll, and this isn’t due to an act of the buyer, then the buyer can make a “claim” on the retention. This means a portion of the retention is then taken off the purchase price and paid back to the buyer.
There are many things to consider when putting together and negotiating a Contract for the sale of a rent roll. Some of these include:
- whether the rent roll will be sold with or without the agency business that operates it
- the retention amount and release dates
- requirements for notices to property owners
- transfer of agency agreements
- clawback claims on the retention for lost properties and the grounds for making claims
- restraints / restrictions on competition against the seller and their directors
- the treatment of GST (for example, whether the sale is GST-exclusive or a going concern)
- multiple settlements
- whether there will be the transfer of the seller’s employees
If you are considering buying or selling a rent roll, contact us to speak to one of our experienced solicitors.
By Luke McKavanagh
Luke is part of Salerno Law’s property and commercial law team. His days involve providing advice on a wide variety of commercial issues that arise in operating small to medium businesses, where he assists clients who are growing their business or wanting to protect what they’ve established. Luke also oversees Salerno Law’s residential and commercial conveyances, and provides advice on issues in property-related transactions.
DISCLAIMER: This article is only meant to give you general information and should not be relied on as legal advice. Speak to one of our lawyers for more information.