Preparing your property management business for sale

In most cases, in the process of selling a property management business, a buyer will conduct an in-depth due diligence investigation. This will usually be a lengthy list of questions about the business and its affairs. It’s a time consuming process, however there are a number of steps sellers can take before a transaction kicks off to get a head start.

Ensuring that business records are properly maintained and up to date before the transaction commences is the best form of preparation. It will also make collating the information requested by the buyer during due diligence much easier. Below is a list of items which all buyers will request when undertaking due diligence on a lettings business and is a good place to start if you’re thinking about selling your lettings business.

1. Details of properties managed by the business including:
2. a) Whether such property is fully managed or let only;
3. b) Amount of deposit held by the business and the tenancy deposit scheme such deposit is registered with;
4. c) Whether all necessary compliance issues have been satisfied (i.e. EPCs, gas safety, fire safety, electrical safety and carbon monoxide alarms);
5. d) Details of any overseas landlords and confirmation of their registration with HMRC;
6. Any standard form property management agreements or terms of business used in the business;
7. Standard form Assured Shorthold Tenancy agreement (AST) and details of any tenants not signed up to this agreement;
8. List of sales properties including those currently available for sale and those sold subject to contract;
9. Details of any bank funding or security taken over the business;
10. Property documents for any business premises (for example a copy of the signed and dated lease);
11. Details of employees including copies of employment contracts and any staff policies;
12. Evidence you have complied with your auto-enrolment pension obligations;
13. Details of any hire purchase equipment or vehicles including copies of the relevant underlying contracts;
14. Copies of supplier contracts (i.e. water, gas, electricity and marketing portals);
15. Details of any licences or consents held (i.e. ARLA, The Property Ombudsman and HMO licences); and
16. Insurance documentation.

When collating the above information sellers should pay particular attention to ensuring that the relevant documents are the most up to date versions and that they have been properly signed.  By doing this sellers will paint a picture of a well organised business which will increase buyer confidence, reducing the risk of unexpected indemnities and price chips.

The volume of information requested can come as a surprise to many sellers, especially when it has to be gathered on short notice, whilst you are still responsible for the day to day running of your business. Ensuring you are properly prepared for the transaction before it kicks off is invaluable and will allow you to progress more swiftly towards completion with fewer issues along the way. In a corporate transaction proper planning really does prevent poor performance.

Of course, before any of the above information is released to a prospective buyer it is vital that a non-disclosure agreement is signed by all parties. This ensures that any confidential information which shared during the due diligence process is safeguarded and prevents the buyer from poaching the business staff or clients.

Once the business documentation in order, you need to consider how to structure the transaction, which will take the form of a share sale or an asset sale. There are a number of legal and tax considerations and it’s important that you take appropriate professional advice to ensure the deal is structured in the most favourable way.

If you have any questions about the contents of this article, or corporate transactions more generally, please contact Ross Brymer and if you are interested in reading about some of the lettings transactions we have worked on recently, please refer to the deal announcements section of our website.