A rent roll exchange can take months, but it will drag out far longer than necessary if the vendor isn’t well-prepared going into the process. What’s more, a lack of preparation can lead to a deal falling apart in the later stages, which is frustrating for everyone involved. 

This article includes two specific case studies as a ‘what not to do’ example when selling a rent roll. In both instances, the deals fell through at the due diligence stage. This came after the Heads of Agreements were created, after contracts were put in place and after finance was issued (all of which takes a number of weeks). The result was time and money wasted by all parties - and there was no sale. 

The case studies illustrate the risks of not being prepared for selling your rent roll.

Due diligence failure example #1

In this example, a rent roll exchange hit a roadblock because ongoing inspection reports weren’t accurately recorded. 

If a renter does not sign an inspection report within seven days, it is assumed they agree with it. However, there must be auditable evidence of documentation being issued to the renter to confirm they were sent the document but didn’t sign the inspection report. This step had fallen through the cracks. 

There is no option to collect signatures retrospectively during a rent roll sale. 

Unfortunately, the lack of evidence relating to a single PUM’s inspection report derailed the whole deal. 

Due diligence failure example #2 

This rent roll exchange failed to go ahead because compliance reports for minimum standards were not completed. 

The consequence of non-compliant rental properties can be ‘naming and shaming’ the managing agent on a public register. Non-compliant properties can also be in line for hefty fines and are frustratingly valueless in a rent roll transaction. The buyer was not willing to take the risk and changed their mind about purchasing the rent roll when compliance issues were revealed. As a result, the deal was over. 

In a rent roll sale, preparation is key

These are two examples of many, as due diligence is the most common point at which rent roll exchanges fall apart, and it happens all the time. 

Failing the due diligence stage doesn’t mean the rent roll can’t be sold. However, it does send the vendor back to the drawing board. If a transaction has already fallen through, it will be more difficult to attract another buyer, and the value of the roll may start to slip. 

If you want to achieve a smoother, more stress-free transaction and a better price for your rent roll, you need to review it with a fine-toothed comb the same way a buyer will. Work through a checklist before you begin work on a Heads of Agreement and you’ll thank yourself when you reach this stage of the process. 

Items to review include: 

• Check all agreements are up to date and signed by all the relevant parties

• Review past inspections to confirm signatures from tenants or a paper trail if you do not have them

• Confirm compliance reports for all properties 

• Check management fees match your financial reports

• Confirm up-to-date and compliant tenancy agreements

• Ensure pool safety and fire alarm checks are up to date where necessary

• Have records ready to confirm how many PUMs you have gained and lost over the last twelve months

• Be up to date with repairs and share evidence of existing maintenance contracts

• Finalise any insurance claims

• Release any bonds as needed

• Ensure all bond money is accessible

• Ensure all key requirements are met

This list is an example of the detail involved in a pre-sale review but doesn’t include everything. Full due diligence can take more than six weeks for a buyer to complete. If you would like to conduct a due diligence self-audit so you can come into a rent roll exchange feeling confident and prepared, get in touch today! We have the full list to share with you.