We regularly help real estate agencies buy and sell property management businesses (otherwise known as, rent rolls). There are a few common traps that buyers and sellers fall into, which sometimes cause hiccups in the process. With some better planning, most of these traps can be avoided. One very common trap is whether or not to update from the PAMDA Form 20A to the POA Form 6.
how did we get here?
In Queensland, the current prescribed form of appointment is a POA Form 6. The POA Form 6 came into operation in 2014, and although we are now in 2018, it is still very common for rent rolls to include a large proportion of rental properties with the previous form of appointment, the PAMDA Form 20A.
so, what’s the problem?
Although both types of forms are legally valid and in most cases assignable from a seller to a buyer, the trap is that most buyers will insist on all properties having a POA Form 6 before they are required to pay for that property. This is largely driven by the buyer’s financier. Most of which have adopted the position that they will not lend the buyer purchase monies against a Form 20A property.
This causes a practical problem for sellers. They will need to have their landlords sign new appointments in a POA Form 6 and probably in a very short period of time. Naturally, this pressure is multiplied by the size of the rent roll, staffing constraints and how long until settlement of the transaction.
what can you do to avoid this?
If you are planning to sell your rent roll, start your review of your properties early. Identify how many properties are operating under POA Form 6 or PAMDA Form 20A and then start taking steps to transition the properties to new POA Form 6 in advance of the sale. A common mistake we see is when sellers and buyers are not realistic as to the period of time they need between signing the rent roll contract and settlement and giving themselves enough time to undertake this process effectively.
An alternative option is to allow for staged settlements, so that properties can be bought and assigned progressively. However, staged settlements can cause other issues. For example, if the property management team is being transferred from the seller to the buyer before all the properties have been purchased and assigned, who will be handling this process for the seller for the subsequent settlements?
Buyers can also be proactive in prompting their financiers for their requirements regarding the forms of appointment early in the transaction to minimise unwelcome surprises.
If you would like to discuss potentially buying or selling a rent roll, feel free to give us a call on 07 3193 3000 to discuss your options.
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