A rent roll exchange involves what’s known as a ‘retention’ period. This is the months after completion and before the price is finalised (settlement).
The reason for the retention period is because some of the PUMs on the rent roll may drop off due to the change in management, which will affect the final price. The retention period also gives the purchaser time to review all contracts associated with the exchange and confirm compliance.
Why have a retention period during a rent roll transaction?
The purpose of the retention period is to make sure there is no further movement of property owners away from the rent roll so the final value of the asset can be accurately established.
During the retention period the following may occur:
A property owner may decide to withdraw their property - the vendor at this point can offer a substitute property which, in agreement with the purchaser, replaces the lost property on the rent roll.
The purchaser must notify the vendor within 72 hours if a property owner wishes to withdraw their property during retention to allow the purchaser to negotiate with the property owner to stay on the rent roll.
At the end of the retention period, all anomalies with any property must be resolved. If there are still PUM’s with outstanding issues which cannot be resolved within 14 days, the matter can go to mediation to resolve the dispute.
What happens when properties are non-compliant during a rent roll exchange?
During the retention period, the purchaser will conduct thorough checks to confirm each property meets legal and regulatory standards. If there are discrepancies or problems, they have the right to withhold payment or withdraw from the transaction entirely.
Common compliance issues during rent roll sales include:
Missing paperwork – Essential authorities have not been prepared or are incomplete
Incorrect paperwork – Forms, assignment letters and agreements have errors or do not meet legislative requirements
Legislative non-compliance – Properties do not adhere to local tenancy laws or safety regulations
Expired agreements - Properties are under management without a valid contract in place.
These issues can make it illegal to manage a property or put the managing agency in line for a fine.
The cost of non-compliance
When these issues surface late in a rent roll exchange, both parties face serious consequences.
The vendor may lose part of the sale price and some of the funds you were expecting, as your buyer and their agent/broker will adjust the final valuation based on compliance risks and the actual number of fully legal PUMs.
If legal disputes arise because of this, costs can escalate quickly. The big risk is the deal collapsing completely, which can result in needing to find another buyer.
For buyers, non-compliance means inheriting risk. Fixing compliance issues requires time, effort and money—something no agency owner wants after making a major investment in a new rent roll.
Avoiding last-minute issues during a rent roll transaction
In an ideal world, your rental property contracts and records would be completely up to date at all times, but with property managers under pressure, it’s all too easy for things to fall through the cracks and contracts to expire without anyone noticing.
Before you list your rent roll for sale, spend time with a broker who will help you with the following:
Thorough compliance audit – To review every property to confirm it meets all legal requirements.
Paperwork review – To ensure Authorities, lease documents, and other records are up to date and error-free.
Issue resolution – To address any compliance gaps before your buyer conducts their due diligence.
By proactively anticipating the issues which cause issues in a rent roll transaction, vendors can avoid costly mistakes and oversights which devalue their asset or crash the rent roll sale altogether.
WHY work with a rent roll broker?
In addition to preparing the Heads of Agreement and liaising with your accountant and lawyer, a broker will help you confirm compliance, altering you to the records and contracts that need to be complete to facilitate a smoother exchange.
The retention period of a rent roll exchange should be a simple waiting game, not a source of extra stress and a scramble to come up with documents. If you put in the groundwork before you sell, this is more likely to be the case.