How to sell your lettings business at the best price (without being left on the hook)

At Truelegal, we continue to see a period of consolidation within the lettings industry as many agents seek to increase their market share by buying up the competition. Fears that Brexit might stall the property market appear, as yet, to be unfounded and good lettings agents continue to make a tidy and reliable profit.

But, if you’re thinking about selling your lettings agency – whether to retire or to raise capital for a new business venture – you may find it easier said than done to achieve the price you want and secure a clean exit.

How to get the best price for your lettings business

The price you can ask for your lettings agency will, of course, depend on a number of factors, including the number of properties you have on the books, the amount of fees involved, the desirability of the agency in terms of its location and reputation, and whether the price includes any assets such as premises and IT systems. But, whatever the variables, the key to avoiding disappointment (difficult though it might be) is to put all personal and emotional investment to one side: an accurate valuation is an objective valuation.

Typically, business transfer agents or brokers will base the valuation either on a multiple of gross recurring fees or net profit. However, any serious buyer will carry out a very thorough health check of your business during due diligence so it’s important that the figures you provide your agent with are accurate – there’s no point in trying to fudge the numbers. In fact, the more work you can put into preparing your business for sale, the better, and that includes making sure that your lettings book is well managed and up-to-date with full details, for example, of steps taken to comply with gas and fire safety regulations.

Effective due diligence is key to selling a lettings agency

Sellers often find the due diligence phase of their transaction frustrating and a nuisance. The list of questions submitted by a prospective buyer can seem endless and irrelevant. Our experience of working with those selling a lettings business means we can pre-empt many buyers’ concerns and queries and give you guidance as to the appropriate level of detail you should disclose in relation to various aspects of your business. As a result, buyers tend to feel more confident with the relationship and we find the sale is more likely to reach a quick and mutually satisfactory conclusion.

You can expect a prospective buyer to drill down through the accounts to make sure, amongst other things, that the net profit is stripped of any owners’ salaries/benefits and non-recurring items. S/he will also be interested to see a detailed profile of the landlord portfolio. Is there, for example, one landlord on the books who owns a high percentage of the total number of properties? Are there any landlords who have expressed an intention to sell in the short term due to health/age/changes in the property market?

If you’re selling a limited company, rather than just the fees, the buyer’s risk is greater and you can expect the due diligence process to take longer. For example, your prospective buyer will want details about any staff you employ and will want to see a copy of the lease in relation to any business premises. It’s important that you disclose full and accurate information and we can help you gather the necessary details in advance to speed up the process.

Structuring the right deal for your lettings business sale

The price you can achieve for a lettings business will also be affected by the proposed structure of the deal. In the current financial climate, where obtaining finance can be a challenge, different approaches are becoming more common and can have a big impact on the allocation of risk between the parties.

Should your purchaser, for example, agree to pay 100% of the asking price on completion (happy days, but unlikely), you will be expected to accept a lower price to reflect that. On the other hand, if you’re not desperate for the cash and come to an agreement with the buyer that the purchase price is spread equally over a number of months (making the purchase practically self-financing), you can expect to achieve a higher asking price to reflect your increased risk. In such circumstances it would, of course, be essential to first carry out your own due diligence into the financial standing of the buyer.

A more likely scenario in the lettings industry is for the parties to agree some form of deferred payment. An example may be 40% of the purchase price on completion, 30% after 1 year and the final 30% after 2 years. It’s also relatively common for a buyer to request a claw back mechanism. This might apply to individual clients or to the portfolio as a whole and could vary in its terms so that, for example, you are required to pay 100% claw back if the buyer loses a client straight away, 50% if they get one year’s fees from the client and no claw back if the client leaves after 2 years. Where a claw back mechanism is agreed, an experienced solicitor will seek to protect your position as far as possible by requesting additional provisions in the sale agreement, including a restriction on the buyer increasing fees above inflation. It’s important that all the finer details are carefully covered.

Don’t undersell yourself: appoint a specialist lettings business solicitor

Thorough preparation of your business records and early negotiation of the right deal structure is critical to achieving the best price for your business and securing the exit you want, whether that be a clean break or ability to stay involved in an advisory capacity. It’s important, too, that the Sale Agreement accurately reflects the deal and includes appropriate warranties, indemnities and disclosures to protect your interests.

Appointing a solicitor like Truelegal, with specialist lettings industry expertise, will give you the reassurance you need to know that you are not underselling your letting business or unwittingly accepting unwanted ongoing liability.

Make a free enquiry

The sooner we become involved in the process of helping you to sell your lettings business the more likely it is that your sale will be successful, so please contact us today.

Please either call us now on 01392 879414 or complete our Free Online Enquiry and we will soon be in touch.

Our full contact details can be found on our Contact Us page.

We look forward to hearing from you.

About the Author:

Leave A Comment

Leave your details and tell us what you need

Your Name*

Your Email*

Your Phone Number*

Subject*

Your Message

(Your privacy is important to us.)

Exeter Office

Truelegal Solicitors 76 Fore Street, Topsham Exeter, Devon, EX3 0HQ

Tel: 01392 879414