There are complex nuances involved in rent roll transitions which require specialist knowledge. Make sure your solicitor is across every area.

If you’re thinking about selling or purchasing a rent roll, there are many elements to take care of as part of the process. 

We have blogged previously about how to structure and value a rent roll, and how to ensure your rent roll is profitable. When you buy or sell a rent roll, you also need to ensure you have the right external professionals to support your journey. This includes your solicitor.

What your solicitor needs to know

A ‘standard’ solicitor may deal in business transactions, but rent roll transitions have specific requirements. It’s not a matter of simply checking contracts. 

There needs to be agreements even before negotiations begin about how value will be determined, how restraints of retention matter and restraints of trade will be implemented,  how GST will be calculated, exactly what’s included in the sale and what will happen after handover. 

If you use a general solicitor, they may not understand which valuation process will ascertain the correct  value of the rent roll. They may not even know why an early agreement on how the value is reached is important if you want everything to proceed smoothly. Starting on the wrong foot in this area carries a high risk of slowing things down.

To do their legal due diligence, your solicitor needs to understand what’s important for a rent roll sale contract so they can point out red flags. An experienced solicitor will take a thorough approach, investigating hard copies and electronic records of backdated management files, and reviewing financial statements to confirm a fair outcome for all parties. 

Your solicitor will detail the items to be included in due diligence. Additionally, they need to ensure the appropriate warranties and indemnities are included in the Contract of Sale. 

Sale agreements 

A standard sale agreement won’t be sufficient in the case of a rent roll sale. There need to be bespoke conditions taking into account, for example, the fact landlords need to give their permission before being assigned or transferred to a new agency. 

Your solicitor will need to be clear on the timelines of your rent roll sale or purchase. Similar to a property sale, there is generally a settlement period after the contract is signed. During this time your solicitor will monitor the due diligence and financing as well as ensure the contract specifies what course of action is to be taken if either of these are not satisfactory or approved.

Completion is commonly about 60 days from exchange of contract and retention is between 3 to 6 months after completion.

All legal paperwork needs to be completed correctly to ensure the rights to manage property are assigned in accordance with legislation. This will confirm property owners have been notified, explain when the buyer can contact the property owner, and specify details about property owners who wish to be released from their management agreement before the sale is complete. 

Covering every detail

If the many terms and discussion points in this article have left you feeling overwhelmed, don’t panic. The main takeaway is make sure you use a solicitor who specialises in rent roll transactions and who understands the complexity of these deals.

BDH Solutions are rent-roll agents with over 40 years experience in connecting the right vendor with the right purchaser. Download our information booklet on the new Victorian Minimum Living Standards Legislation