Selling a lettings business

The past year has been a busy period for residential sales and lettings transactions with FSP receiving an increased number of instructions from both purchasers and sellers. If you are selling your lettings business, there are a number of steps you can take before a transaction kicks off to make the process run smoother and increase buyer confidence, reducing the risk of the price being chipped or the transaction not proceeding.

Ensuring that your records are properly maintained and up to date before the transaction commences is a great way show a potential buyer that your business is being run competently. It will also make collating the information requested by the buyer during due diligence much easier. There are certain pieces of information which all buyers will request:

1. Details of properties managed by the business including:

a) Whether such property is fully managed or let only;

b) Amount of deposit held by the business and the tenancy deposit scheme such deposit is registered with;

c) Whether all necessary compliance issues have been satisfied (i.e. EPCs, gas safety, fire safety, electrical safety and carbon monoxide alarms);

d) Details of any overseas landlords and confirmation of their registration with HMRC;

2. Standard form Assured Shorthold Tenancy agreement (AST) and details of any tenants not signed up to this agreement;

3. List of sales properties including those available for sale and those sold subject to contract;

4. Details of any bank funding or security taken over the business;

5. Property documents for any business premises (i.e. a copy of the lease);

6. Details of employees’ standard contracts and any staff policies;

7. Evidence you have complied with your auto-enrolment pension obligations

8. Details of any hire purchase equipment or vehicles;

9. Copies of supplier contracts (i.e. water, gas, electricity and marketing portals);

10. Details of any licences or consents held (i.e. ARLA, The Property Ombudsman and HMO licences); and

11. Insurance documentation.

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 less 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 is provided during the due diligence process is safeguarded and prevents the buyer from poaching your staff or clients.

Once you are comfortable that you have all of your documentation in order you are ready to start the transaction process. The next step is deciding how to structure the deal to ensure you sell your business in the most tax efficient way. In the next instalment of our articles focussed on lettings transactions, which will be available next month, my colleague Penelope Garden considers deal structuring and the sale and purchase agreement.

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.