What skeletons will they find in the closet?

Once you have agreed heads of terms with a buyer, they will want to conduct extensive due diligence into the business before completing on the acquisition.

This due diligence will look at issues such as client account reconciliation, business account management, managed property legal compliance, tenancy compliance and documents, corporate compliance, professional memberships, business insurances, HR paperwork, staff development plans and staff training logs.

Tenancy compliance is no longer one item among many

When this guide was first written, tenancy compliance was one item on that list among many. It is now the item most likely to change the price.

Two things have happened since. In Wales the Renting Homes (Wales) Act replaced tenancy agreements with occupation contracts, and every existing tenancy had to be converted. In England the Renters’ Rights Act has begun replacing the assured shorthold framework, and with it the notices and procedures most agencies’ files were built around.

The consequence for a seller is straightforward. A buyer is not buying your compliance today. He is buying every tenancy in the book, set up under whichever rules applied at the time, along with anything that was missed. Deposits protected late, prescribed information that cannot be evidenced as served, the wrong version of a document issued at the wrong moment. None of that can be fixed retrospectively, and all of it transfers.

The audit worth doing is not a check that you are compliant now. It is a check that you can prove you were compliant then.

So the audit worth doing before you go to market is not a check that you are compliant now. It is a check that you can prove you were compliant then, tenancy by tenancy, going back. That is a much bigger job, and it is the reason to start early.

Explaining the audits to your staff

It is unlikely that you will want to disclose to staff that you are considering selling the business, as this would likely be unsettling and possibly lead to them moving elsewhere. The loss of experienced staff could create instability in the business and undermine its value. If you do not warn them of the sale, then you will need to decide how to explain the audits taking place as part of this due diligence process.

It will make sense to have a full audit of your compliance paperwork before starting the sale process, so that you are sure everything is in order. Any deficiencies can then be resolved prior to the sale, or disclosed at an early stage so that offers are made with full knowledge of them. In this way, deficiencies in compliance cannot be used to subsequently reduce the price agreed.