ARTICLE BY JOHN PUNCH<\/p>\n
Ever since management rights sales began some 38 years ago, the standard method for calculating a sale price has been to apply a multiplier to the net operating profit of the business, for a one year period preceding, but ending as close as possible to the signing of the contract.<\/p>\n
Some lawyers and accountants are now proposing to allow for adjustment of the sale price at settlement to take account of any lots that may leave the letting pool between the signing of the contract and the day before settlement.<\/p>\n
Generally, we find that as soon as we inform any sellers of management rights that the sale price is vulnerable to becoming an amount that they have no control over, there is an outcry and refusal to agree. For instance, recently an agent introduced a seller to a possibility of selling the Manager\u2019s unit for a specific price or at a market value determined by the buyer\u2019s valuer. That produced a major hurdle to the transaction proceeding. \u00a0Hence, we would expect resistance, from clients selling, to the process of incorporating an automatic reduction in price if there is a reduction in the number of lots in the letting pool.<\/p>\n
Whilst lawyers and accountants might feel that it is a worthy, mechanical arrangement, to lower a price based on a variance in the number of letting appointments between the date of the contract and the date of completion, the person whose sale price is reduced will not see it that way.<\/p>\n
If the buyer argues for the proposed method of reducing the price, the seller could argue that the same method should be used to increase the price if the number of lots in the letting pool increases between the signing of the contract and the settlement date.\u00a0 This would create all sorts of difficulties with the financing of the purchase.<\/p>\n
There is strong justification to view the sale as the sale of a business mechanism, affording business opportunities to the buyer, rather than the sale of a rent roll with a specified number of \u201clots under management\u201d being sold. As soon as the sale goes through the number of letting appointments may go down, or up, so why only count those \u201cexisting at the time of settlement\u201d as being the method for calculating the value of the business.<\/p>\n
There will always be factors affecting the returns \/ profit of the business at various times of the year from year to year. This needs an assessment to be made by the buyer as to its value, on a holistic approach, rather than measured by the actual counted number of letting appointments at a particular cut-off date.<\/p>\n
It is not for us as lawyers or accountants to set the price to be paid by or to our clients. It has to be a commercial decision made by the buyer, taking into account all the information at hand.<\/p>\n
Naturally, a buyer needs to be aware that they are buying a measured and valued goodwill component, rather than a numerically determined rent roll. If a buyer insists on a rent roll acquisition type of transaction, then it will be a decision for the seller to accept it or not. Accordingly, agreeing on including a standard \u201cfall clause\u201d as a clawback on the price for reduction of the letting pool, is not a path that should be treated by lawyers and accountants as the norm, for the above reasons.<\/p>\n
If in fact you are going to destroy the concept of selling management rights as a business with \u201ca business opportunity\u201d as its goodwill and treat them as a sale of a rent roll, the door opens much wider than simply counting the letting appointments on the settlement date. \u00a0\u00a0If the industry is going in that direction, it will be a further erosion of an otherwise confident operating arrangement for a clean sale of a business between buyers and sellers.<\/p>\n
Lawyers and accountants should not, in our opinion be encouraging buyers to think that the business value is only as good as the number of letting appointments on a specified date, rather than the sale of an opportunity to \u201cgrow\u201d an operating arrangement with all of its legally protected mechanisms.<\/p>\n","protected":false},"excerpt":{"rendered":"
ARTICLE BY JOHN PUNCH Ever since management rights sales began some 38 years ago, the standard method for calculating a sale price has been to apply a multiplier to the net operating profit of the business, for a one year period preceding, but ending as close as possible to the signing of the contract. Some lawyers and accountants are now proposing to allow for adjustment of the sale price at settlement to take account of any lots that may leave the letting pool between the signing of the contract and the day before settlement. Generally, we find that as soon as we inform any sellersRead More →<\/a><\/p>\n","protected":false},"author":1070,"featured_media":817,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mbp_gutenberg_autopost":false},"categories":[3,2,4],"tags":[],"_links":{"self":[{"href":"https:\/\/theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/posts\/816"}],"collection":[{"href":"https:\/\/theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/users\/1070"}],"replies":[{"embeddable":true,"href":"https:\/\/theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/comments?post=816"}],"version-history":[{"count":1,"href":"https:\/\/theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/posts\/816\/revisions"}],"predecessor-version":[{"id":818,"href":"https:\/\/theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/posts\/816\/revisions\/818"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/media\/817"}],"wp:attachment":[{"href":"https:\/\/theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/media?parent=816"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/categories?post=816"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/tags?post=816"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}