Irrespective of whether you’re considering a sale, it is in your best interest to be well organised at all times with your management rights, so that you can either borrow money or sell when you want, and potentially save yourself some money through the process.
It makes sense that the more organised you are, the better your business will value and it’s likely that you will attract the right kind of potential buyer, as well as costing less to sell.
All vendors at some time in their career decide to sell their management rights. So, when is the right time? Are there buyers looking? Are the financiers active? What is the market going to do?
We are regularly asked these questions, and plenty more.
Regardless of whether it’s a buoyant market or a depressed economy, there is always some form of prospective purchaser looking for what they imagine is their perfect match. Some are wanting / needing a job, and others are after the purported lifestyle.
Vendors need to be aware that if they are even considering a sale, then they need to be appropriately prepared. One can’t approach a transaction like this in a half-hearted manner as it is unlikely there will be a second chance; MR Sales expect the coming year to be a tough calendar year as far as management rights sales are concerned.
To ensure you get the desired result, it is recommended that you seek professional assistance – the perfect outcome is usually achieved when you have all aspects reviewed and prepared by industry specialists – accountants and lawyers alike – and then ensure that you’re dealing with a competent and professional industry broker.
In our experience, contracts are most often terminated because of a failure to meet contract conditions and these usually occur as follows:
- the verified net profit is incorrect,
- the due diligence of agreements has legal issues,
- the manager’s real estate fails to value up and the financier’s valuation falls short of the contract price.
Unfortunately, in some cases, the broker handling the sale has not been proactive - failing to give the vendor the service being paid for. Selling management rights can be an expensive and stressful time / process for all parties, but if managed correctly, the drama can be avoided.
A word to the wise: Do not let the management rights sale be handled by a broker trying to buy your listing. The listing becomes just that - a listing and not a sale.
None of these contract breakers will occur if you prepare for the sale with the same positive professional attitude that you adopted when you purchased. Purchasers and banks who lend the money needed, prefer to deal with well organised professionals with established and simple systems.
Check your caretaking and letting agreements and deeds of variation to ensure they have as many years as possible to run. The banks and buyers prefer to see at least 10 years on standard module and 20 years or more on accommodation module agreements. The longer the term, the more appealing the loan conditions offered by financiers.
Often managers neglect to top agreements up, and this can be viewed as a sign of personal issues with their committees. This usually comes home to roost at the worst possible time, resulting in not being able to meet contractual requirements. Had they been topped up along the way these issues may not have arisen. It is of vital importance to have committees get used to managers saying “I would like to put a motion to the AGM with committee support to top my agreements up.”
Check your authorities to act (Form 6) and make sure they are up to date so that you are not chasing unit owners to get them done at the last minute.
The annexure of charges should also reflect the actual charges to unit owners that are being charged.
As mentioned before, have a current profit and loss (P&L) statement prepared by an industry-recognised accountant, and if you have cleaners and a receptionist in your business have those expenses included on the P&L. It is easy for a verifying accountant to pick things up and identify when someone is increasing the bottom line by removing some expenses. In all things, be honest.
Manager’s residences can be a contentious issue with buyers who don’t understand the commercial value of the manager’s residence and office, so it is in your best interest to have an independent valuation that eliminates a possible argument over the price of the real estate. Everyone knows someone that has access to RP Data and therefore the sale price of units in the building. Although this is not an exact reflection, it can create doubt in the buyer’s mind of the real estate value.
With lending criteria as strict as it is currently, and with committees and their lawyers wanting more and more information from both sellers and buyers, it is paramount that everything lines up to make the sale process easy for buyers.
If all of the above factors have been covered and you have the business priced appropriately for market expectations, a sale can, and will be achieved by working closely with an experienced broker.
You owe it to yourself to approach an impending sale with the same dedication you had when buying the management rights, and your ability to achieve the desired conclusion to a contract of sale is 100 percent dependent upon correct and factual information being collated by your management rights broker.
Select your broker carefully, a full time professional with a proven track record. Present the facts backed up by prepared documentation ensuring you market the management rights at “today’s marketable and achievable price”.
Lost opportunities can be expensive, and we only have one life to live.
