The process of buying an accommodation business is similar throughout Australia and involves a framework that provides purchasers with a reassuring level of security.
STEPS TO ACCOMMODATION PURCHASE EXPLAINED
The process for buying an accommodation business is fairly similar across all types of businesses and throughout all States and Territories. After agreeing on a price, a purchaser is generally permitted to conduct extensive research (due diligence) into the business they are buying to ensure everything is in order. As such, buyers have a large degree of security when buying accommodation enterprises such as motels, apartment hotels or a management rights business.
OFFER AND ACCEPTANCE
When you have found an accommodation business that you would like to purchase, we request 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 and stipulates your purchasing entities, an offer on the property and 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 time frame as to when the various stages of the due diligence must be completed.
DUE DILIGENCE
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 the business isn’t overstating the income it is generating or understating the expenses incurred to operate the business.
The accountant will provide a report with his/her findings. If discrepancies are found in the business’s finances and reporting, this might lead to a readjustment of the purchase price. The process usually takes 14 days.
Once the business’s finances have been verified, 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 and caravan parks, this will involve reviewing the lease documents. This process usually takes a further 7 days.
FINANCE
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.
ASSIGNMENT
In the case of buying 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 a valid reason (generally only if the purchaser has been bankrupt or has a criminal record).
SETTLEMENT
Settlement can happen a few days after the contracts become unconditional. Generally, there’s 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.
So, generally speaking, the path from agreeing to a sale to settling that sale takes two to three months. This process applies to the purchase of all accommodation enterprises, whether a hotel, motels, caravan/cabin park, management rights business or backpackers.
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