USING EXPERTS

25/09/2017 by Frank Higginson – Director | Hynes Legal

Using experts

You may well have heard this bit before, but we will repeat it again.

Use people who are experts in management rights to help you in your sale.

Management rights remains a very specialised legal area. Using someone who does not know what they are doing to assist you will be an experience fraught with frustration (through your advisor not knowing what is going on and not being able to assist you) and financial danger, which is usually the result of bad advice.

Many people call themselves experts. It is easy to advertise that. If they do, don’t be afraid to ask for testimonials from other management rights clients. Ask them how many management rights transactions they are currently working on, or how many management rights clients they have advised over the last few months. Investigate how committed they are to the management rights industry. Ask the other industry professionals you are working with how often they have dealt with your advisors.

We see the consequences that come from not using management rights experts. They can be significant. Do not be lured into using someone who simply does not
know what they are doing for a cheaper price. As evidence of our expertise in the management rights industry, we are panel lawyers to ARAMA, the peak management rights industry body. Many so called management rights “legal experts” are not. The management rights sale process can be complicated. Some people may attempt to oversimplify it which can have negative consequences. In the right hands a management rights sale is streamlined and can be quite straight forward. Unfortunately you sometime don’t know what not having an experienced advisor on your side means until you run into trouble – and by then it can be too late.

Do you need to use a management rights broker?

In a strict sense, no. The same applies to both accountants and lawyers, but there are good reasons for using all three.

You absolutely can try to sell the business yourself. You can do your own profit and loss for sale purposes and also try to do your own legals.

Leaving aside finding buyers, a good management rights broker helps set expectations of each party correctly from the start and ensures that each party knows where the other is coming from. That means when something goes wrong on the way through the sale the broker is a good intermediary to help solve the issue – no matter what it is.

In the absence of a broker, when something goes wrong, either you or your lawyer has to solve it. Ethically, a lawyer cannot communicate directly with the client of another lawyer. Communications via lawyers are always impersonal and are never as good as direct phone contact between the buyer and seller via the broker. If there is no broker your only solution may be a lawyer to lawyer conversation, or it may fall to you personally to talk to the buyer and solve the issue. Depending on what the issue is, these can be difficult phone calls.

If you do sell yourself, your lawyer can (and should) prepare contracts for your sale.

Your management rights broker

List with someone who is deeply involved in the management rights industry. They will have the connections and access to buyers to find someone quicker than listing with a general real estate agent. They will also usually be able to give you a very good idea of the market value of your management rights business. Real estate prices can move about – and quite considerably in some price brackets and areas. A good broker will suggest a valuation of the real estate if they are not sure.

They will help you understand what is selling in the current market and why. They may also be able to give you some tips to ensure you present the unit and the
business in the best possible light.

They will also be able to help troubleshoot on the way through the sale when something goes wrong. If the figures do not verify for some reason you want someone with experience in renegotiating prices to be able assist you through the inevitable to and fro.

A management rights broker’s role on the sale is far from concluded when the contract is signed. The broker can work harder through that transaction than they did through the listing and initial negotiation process.

Your accountant

The contract will normally be subject to the buyer verifying that a two person management team could obtain the net profit you have suggested. When preparing a profit and loss statement for sale purposes you need to make sure that your accountant knows what expenses to include and exclude so you list the business for sale with a realistic (and sustainable) net profit.

If there are one off items of income or expenditure, they should be qualified. If you employ staff, there is always the question of how much of their salaries you should add back to the net profit as being a lifestyle choice of yours (in that you could do the work but you have chosen not to). All of these things (and more) should be addressed in the profit and loss so that the buyer understands any immediate issues.

Nothing alienates a buyer more than the figures not verifying to what you have suggested they should. Rightly or wrongly, if the figures verify lower than you have stated (and especially if they are out by a significant degree) the buyer may think that you may have tried to mislead them – and that is not a good place to sit in a transaction that includes an element of trust.

Your lawyer

Your lawyer needs to have real and extensive experience in dealing with all of the issues that may arise. That means any problems that occur on your sale should be able to be solved with minimum of fuss and expense. There is also quite an art to managing all the moving parts of a management rights transaction. Things can, and quite often do go wrong. Being able address issues quickly and practically comes from experience and saves time and money.

Aside from managing the confirmation of the conditions to be satisfied by the buyer, your lawyer has to deal with the body corporate and the committee on the assignment. Knowing what to do and when to do it is critical. Assignments of management rights agreements are no longer the simple ‘tick the box’ exercise they once were.

In addition, your lawyer will facilitate the transfer of both the unit and the business and make sure the documents you are signing are correct and do not expose you to any additional risk. It is far from uncommon for buyer’s lawyers to include warranties and statements in the deed of assignment that go above and beyond what are in the contract. A good lawyer acting for you will make sure you only commit to what you have to.