In the world of property management, the sale and acquisition of rent rolls are common occurrences. When a buyer purchases a rent roll from a seller, there are various considerations to be made, one of which is the establishment of a retention period. This blog post aims to shed light on the concept of retention periods in contracts of sale of rent rolls, focusing on the standard practice of a 90-day retention period with 20% of the purchase price held in a solicitor’s trust account. We will explore the purpose of this retention period, its significance for both the buyer and the seller, and the procedures involved at the end of the retention period.
Understanding Retention Periods
A retention period refers to a specified duration during which the buyer of a rent roll holds back a portion of the purchase price as security against potential losses. This period serves as protection for the buyer in case they encounter unexpected circumstances that result in the loss of management of certain properties within the rent roll. These circumstances may include landlords’ preferences for not continuing with the new buyer, selling the property, or deciding to reside in it.
The Purpose and Benefits
The retention period acts as a safeguard for the buyer, ensuring they are compensated for any loss of managements during the specified period. It provides financial security by allowing the buyer to recover the value of the lost managements, as long as they can provide evidence demonstrating that the loss was beyond their control and not due to any fault on their part. This provision helps alleviate the potential financial burden on the buyer and encourages them to proceed with the purchase of the rent roll confidently.
The Standard Retention Period
In most contracts of sale for rent rolls, the retention period is typically set at 90 days. During this time, the buyer retains 20% of the purchase price in a solicitor’s trust account. This arrangement ensures that the seller receives the majority of the sale proceeds immediately, while a portion is held in reserve for the buyer’s protection.
Procedures at the End of the Retention Period
At the conclusion of the retention period, the buyer can claim reimbursement for any lost managements that meet the specified criteria. They must provide valid evidence, such as correspondence with landlords or relevant documentation, to demonstrate that the loss was beyond their control. Once the buyer’s claim is verified and accepted, they are reimbursed for the value of the lost managements from the retained funds. The remaining balance of the retention monies is then released to the seller.
Retention periods play a crucial role in contracts of sale of rent rolls, providing security for buyers against unforeseen losses of management. The standard practice of a 90-day retention period with 20% of the purchase price held in a solicitor’s trust account ensures both parties are protected. It allows the buyer to recover funds for managements lost through no fault of their own and enables the seller to receive the balance of the retention monies once the retention period concludes. By understanding and adhering to these retention period guidelines, buyers and sellers can engage in rent roll transactions with greater confidence and peace of mind.