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Buying Management Rights
The finalisation of the purchase of management rights follows a series of steps:
- Negotiating The Deal: Now that you have a working knowledge of how management rights are valued you are in a better position to understand if the prices being asked are reasonable. Be careful when deciding the merits of the multiplier being asked as this is an area open to considerable interpretation.
- Offer And Acceptance: When agreement is reached an Offer and Acceptance document is often used as an expedient way to formalise the negotiations. It is a handshake document and it is not legally binding by either party.
- Contracts: The contracts for sale are prepared by Cairns Port Douglas RESORT SALES and forwarded to the purchaser’s solicitor.
- Deposits: The deposit amount may be negotiable to some degree but it is usual for the buyer to pay a deposit of between 5% and 10% of the purchase price.
- Financial Due Diligence: Once the contracts are signed, the bank providing the finance will require a financial due diligence involving an on site investigation of the sellers records carried out by an accountant experienced in the management rights industry at the buyer’s expense..
- Legal Due Diligence: The solicitor acting for the buyer will undertake a thorough search and check the Caretaking and Letting Agreements, the PAMDA Form 20A Letting Appointments and check the Body Corporate records and contract conditions.
- Bank Loan Approval: Once the financial due diligence has been completed and found correct, the bank commences the process of approving the buyer’s loan application.
- Body Corporate Approval: The body corporate is required to approve the assignment of the Caretaking and Letting Agreement from the existing manager to the incoming manager.
Once these requirements have been satisfied, settlement will follow. In our experience the usual period to acheive all of the above approvals is generally 8-10 weeks. To be safe, a time span of about 3 months should be expected from initial offer to final settlement, with settlement usually taking place on the last day of the month.
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