Off The Plan Management Rights Businesses
Buying or selling a management rights business before it exists is known as buying off the plan.
It is a far different process from buying an existing business. One of the key issues is effectively being able to draw a picture of what the business will look like on settlement. When you buy a unit off the plan, the purchase contract for that unit will show you what it will look like when it is built. The contract will include plans and specifications of the unit itself. You can see what you are buying.
From the business side of things what it will consist of will be new management rights agreements and a certain number of units in the letting pool. The skill in drafting or negotiating an off the plan Management Rights contract is to ensure that what is being sold is delivered. There are also numerous contingencies that need to be addressed. These include:
- Is there a sunset date for delivery of the development, or individual stages?
- A buyer should only pay for units that form part of the letting pool. These arrangements and the security for them are known as claw back or claw forward arrangements. The detail involved in clauses of this nature is critical, particularly with who bears the risk of lost appointments.
- Is there a minimum number of lots to make the business viable? Working this into the contract is important.
Managed correctly, the buyer can avoid paying stamp duty on the business purchase. Stamp duty will be payable on the unit though no matter what.
At Hynes Legal, we have acted in more than 100 off the plan purchases and sales. We are usually engaged by purchasers but we sometimes act for developers just on the disposal of the management rights business off the plan.
When it comes to buying a management rights businesses off the plan, you cannot be too careful. What is said at the time of the agreement on price is very important to document, as those things are sometimes forgotten months (or years) later on registration.
An example of an article where we talk about this issue: