The process for buying an accomodation business is fairly similar across all types of business and across all States and Territories. After agreeing a price, a purchaser is generally permitted to conduct extensive reasearch (due diligence) into the business they are buying to ensure everything is in order. As such, purchasers have a large degree of security when buying accomodation businesses.
When you have found an accomodation business that you would like to purchase, we request that you make an offer via a ‘heads of agreement’ or 'offer and acceptance' form. This is a non-legally binding document that serves as a means of formalising your offer. This will stipulate your purchasing entities, a dollar offer on the property and usually a number of conditions. This form is presented to the owner, who may wish to accept, reject or counter-offer. This process is repeated until a price is agreed (or not, as the case may be).
Once a price is agreed, the vendor’s solicitor will draw up contracts. This will normally take a couple of days. Once prepared, both parties sign and the property is now ‘under contract’. The contracts outline all terms and conditions of the transaction, along with a clear timeframe as to when the various stages of the due diligence must be completed.
Almost all contracts will stipulate an annual net profit figure that must be verified as part of the due diligence. Your appointed accountant will visit the property and conduct a thorough investigation of the trading figures of the business. This is to ensure that the business is not overstating the income that it is making or understating the expenses incurred to operate the business. The accountant will provide a report with his/her findings. If discrepancies are found, this might lead to a readjustment of the purchase price. This process usually take 14 days.
The next step is for your appointed solicitor to check that the business is legally sound. In the case of a management rights business, this will involve examining caretaking and letting agreements, roll searches for the complex and AGM minutes. In the case of motels, this will involve reviewing the leasehold documents. This process usually takes a further 7 days.
Once the income verification and legal due diligence have been satisfied, the final step is for your chosen financier to provide a stamp of approval for your lending. Finance approval is generally granted via a letter of offer from the lender. Once received, the contracts become unconditional. This process usually takes a further 7 days.
In the case of buying a management rights business, the assigment of the caretaking and letting agreements must be approved by the body corporate committee. Once the contracts become unconditional, the body corporate committee is notified of the sale and is provided with CV's and references for the incoming manager. The committee is permitted up to 30 days to call the assigment meeting. They can not withhold assigment without valid reason (generally only if purchaser has been bankrupt or has a criminal record).
Settlement can happen a few days after the contracts become unconditional. Generally, there is a pre-agreed date between the vendor and the purchaser. More often that not, this occurs on the first or last day of the month as this makes handover easier.
So, generally speaking, the path from agreeing a sale to settling a sale takes two to three months.