The process of selling an accommodation business is similar throughout Australia and involves a framework that generally progresses through the following stages.
After agreeing on a price via an offer and acceptance document, contracts are entered into. From that point, a due diligence period commences, during which the purchaser is permitted to conduct research into the business in an agreed timeframe. This is the process.
OFFER AND ACCEPTANCE
When we have found a buyer who would like to purchase your property, we request that they make an offer via an official document, usually referred to as an 'offer and acceptance' or a 'heads of agreements'. This is a non-legally binding document that serves as a means of formalising an offer. This will stipulate 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).
CONTRACTS ARE DRAWN UP
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. The buyer's appointed accountant will visit the property and conduct a thorough investigation of the trading accounts of the business. This is to ensure that the stated income and associated expenses have been correctly calculated and stated. The accountant will present a report to the purchaser with his/her findings. If any discrepancies are found, it may lead to a request for a readjustment of the purchase price. Contracts normally allow 14 days for income verification.
The next step is for the buyer's appointed solicitor to verify 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 lease documents. Once the purchaser's solicitor confirms the business in legally sound, the income verification report and legal due diligence report are provided to the purchaser’s lender to finalise finance approval. Contracts normally allow a further 7 days for legal due diligence.
Once the income verification and legal due diligence have been satisfied, the final step is for the purchaser’s chosen financier to provide a stamp of approval for their loan. The purchaser's financier is provided with a copy of the income verification report and legal due diligence report. Finance approval is generally granted via a letter of offer from the lender to the purchaser. Once received, the contracts become unconditional. Contracts normally allow a further 7 days for finance approval.
In the case of selling a management rights business, the assignment 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 CVs and references for the incoming manager. The committee is permitted up to 30 days to call the assignment meeting. They cannot withhold assignment without valid reason (ie. if the purchaser has been bankrupt or has a criminal record).
Settlement can happen a few days after the contracts become unconditional (or a few days after the assignment meeting, in the case of management rights). Generally speaking, there is a pre-agreed date between the vendor and the purchaser. More often than not, this occurs on the first or last day of the month, as this makes handover easier. Funds are transferred on the day of settlement, and the seller is free to get on with the next chapter in their life.
In summary, the path from agreeing a sale to settling a sale generally takes two to three months.