We regularly act for real estate agents (property managers) who are either buying or selling a rent roll.
A rent roll is a group of landlords who receive property management services from a real estate agency including but not limited to assisting to find a tenant, verifying the identity of the tenant, collecting and lodging a rental bond, managing and conducting routine inspections, collecting rent, paying outgoings and accounting to the landlord for the balance, and things of that nature.
The most common challenge that we see from first time buyers or sellers of a rent roll is that they underestimate the work that is involved to conduct due diligence (from the purchaser’s side) and ensure that the rent roll is “compliant” for the purposes of the rent roll sales contract and in accordance with relevant regulations.
From the sellers’ perspective, the contract that you enter into will almost certainly include a clause that says you have to hand over a compliant file for each individual property that you manage to the purchaser.
This includes having copies of all relevant rental ledgers, ingoing and periodic inspection reports, identity documents for tenants, evidence of rental bond payment and lodgement, and things of that nature.
This means that if you are preparing to sell your rent roll you should audit your files to make sure that they are compliant and in good order.
From a purchaser’s perspective, it is your job to review each file and make sure it is compliant and to your satisfaction in accordance with the contract and relevant regulations.
While some rent roll sales agents can assist with due diligence, you are the one who is going to be managing each management agreement in the future so you need to make sure that the managements that you are buying are compliant.
Usually, the rent roll sales contract you enter into will set out that a purchaser can reject non-compliant files/managements, or, in some cases pay a lesser price for certain managements (for example if a property is vacant at the time of settlement).
While this mechanism provides some protection for purchaser’s of rent rolls, the nature of a rent roll sale/acquisition is that it is in both the seller’s and the purchaser’s best interests to transition compliant files as opposed to getting into a contractual fight about who should have done what.
If you are selling a rent roll, you want to make sure you get paid in full for your asset.
The best way to do this is to audit your rent roll prior to selling it to make sure it is compliant.
If you are a buyer, you are seeking to either establish a rent roll or increase the number of properties you have under management. It is contrary to those intentions to simply reject non-compliant files and we always encourage purchasers to engage in their due diligence with an expectation that they may need to do some work themselves not just to check that files are compliant, but assist the seller in making them compliant where possible to maximise the amount of compliant management agreements they are able to add to their portfolio.
If you are thinking about buying or selling a rent roll, contact us today to discuss.
Daniel McKinnon
Since graduating with two degrees in Law and Commerce from the University of Wollongong, Daniel’s spent over ten years solving a wide range of legal problems for the people of Western Sydney.