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Love thy Landlord!

You have got to be kidding me!

“My landlord wants to put the rent up again and I think I am already paying too much.”

I know what you mean, however when it comes time to selling the pharmacy or refinance, you need to be on good terms with your Landlord. Here is a role-play example with an ongoing percentage (%) chance of a deal being done.

Finance has become increasingly difficult to secure in recent times and this is having an effect to sale of pharmacies throughout Australia. When it comes to a sale of a pharmacy there are many steps along the way. Once you have agreed on the price and terms of a sale in the form of a Heads of Agreement or Contract I would suggest you are only about 25% on the way to getting the deal done. Most sales are subject to due diligence, finance, and transfer of Lease amongst others conditions.

Let’s say the purchaser and his/her accountant is prepared to say that they are satisfied with Due Diligence within four weeks of the original agreement. Now you are around 40% closer to getting the deal done. Finally the confirmation that finance is approved subject to completion of documentation between the borrower and the bank. Great we are at say 60% assured of settling this deal.

At this point the Vendor’s solicitor is now prepared to communicate with the Vendor’s Landlord via the Landlord’s Solicitor to advise that the business has been sold and we need the Transfer of Lease prepared by the Purchaser’s Solicitor to be signed. Settlement is looming and of course the Landlord’s Solicitor is having trouble contacting the Landlord as he is on his annual holiday currently in Paris.

Finally after 3 days we get word back from the Landlords Solicitor that the Landlord would like to see 2 or 3 references about the prospective Tenants. So the Purchaser of the pharmacy anticipating he will become the tenant runs around getting references about himself which is difficult if this is your first business as you may not be able to satisfy the Landlords request in the regard. The references and financial position is presented to the Landlords Solicitor and this is forwarded to the Landlord who has moved on to Rome. We drop another 4 days.  Finally the word comes back from the Landlord that if the Tenant agrees to a tenancy deposit of 3 months’ rent and pays a part of the Landlord’s legal costs he will agree to the transfer. The Purchaser was not ready for that but what he can do as he is committed to the deal and these extra costs are not the end of the world. At least we are getting the transfer approved and we can move on.

Not so fast, we are at the 75% mark now.

Finally the first part of the Banks finance documents arrive from the Purchaser’s Solicitor to the Landlords Solicitor, where upon he looks at them and writes to his client the Landlord saying I thought they might ask for a Mortgage of Lease and a Right of Entry but I don’t see why you should complicate your position as Landlord, so I recommend you say no to these documents. Another 3 days later we hear back from the Landlord now in Venice via his Solicitor saying “if that’s your advice we will so no to these documents”. I think we have just slid back to about the 60% mark after coming so far.  The Purchaser’s Solicitor advises the bank that the Landlord does not want to sign the documents providing Right of Entry and a Mortgage on the Lease and therefore would it be ok to settle without these documents given we are prepared to sign all documents that relate to the purchaser’s commitment to the loan.  The Banks reply is ‘NO’ we will not proceed without these documents.

At his stage The Vendor’s Solicitor and the Purchaser’s Solicitor is encouraging the Landlord’s Solicitor to ask the Landlord to reconsider signing the documents so the sale can proceed.

The Vendor’s Solicitor is pointing out to the Landlord’s Solicitor the following:

  • The Vendor has always paid his rent on time
  • Has kept the building in a fair and reasonable state
  • Wants to move on or retire after many years as a good Tenant
  • The documents actually guarantee your rental
  • The business could be considered unsalable, as all Purchasers of pharmacies require finance these days and Banks want their documents signed

And the Purchaser’s Solicitor is asking the Landlord’s Solicitor to give his client a go etc.

I don’t know about you but I have lost track of what % chance this deal has of proceeding.

Anyway, the Landlord’s Solicitor confirms that he will ask his client again in 2 days when he arrives back in Rome from his wine tasting tour of Tuscany. The Landlords Solicitor confirms to the Landlord that they really want you to sign the forms and I guess it does guarantee your rent so it’s not so bad. If you don’t sign it, the business might not be able to be sold and that can affect you down the track, so let’s agree to you signing the documents. To which the Landlord says ok if you think that is what we need to do. I’ll be back in Australia in 3 days to sign those documents. That now puts the deal at 90% complete once everyone has been advised and the no one has pulled out of the deal through frustration.  Finally we settle and only 10 days late. Not bad these days!

In some situations the Landlord’s own financier is asked to sign of documents as well. Let’s not even go there!

A good agent will explain the process and keep you informed and help you get the result you want, but until that day comes ‘love thy Landlord’.

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