Eyes Wide Open

Wednesday 13th December 2017 06:50 EST

We are currently engaged with buyers for a site which our investor owns. This deal was done in a way which goes against the grain of the way most transactions in the industry happen; you could say we put the cart before the horse. 

Normally, in a transaction, you are told some prima facie information about a property, you then have a look at the property.  If you decide to purchase it, you agree the price and then the matter is placed in the hands of the lawyers to get on with. 

However, what normally happens with the majority of buyers, is that this is when the real due diligence starts.  Certainly, from a legal perspective, the information has to be extracted by a lawyer and often from a lawyer, therefore, they are needed for this aspect of the deal.  After the deal has been agreed, a valuation will normally be instructed and any issues will come out in a report, depending on the type of report carried out.  There will also be extensive corporate due diligence carried out, if one is purchasing a company.  It is at this point the buyer will become more conscious of the potential tax liability and so forth.

The word inertia is an interesting word, it means the tendency of an object at rest to remain at rest unless acted upon by external forces.  This can be observed in many buyers too.  Buyers tend to be passive and tend to follow the normal flow, where a problem is only addressed when it floats to the surface, instead of flushing all the issues out from the outset.

The real DD happens after the deal has been agreed and it’s in lawyers hands.  This means money has started to spill, and the clock is ticking.  You could end up with no property and a big fat bill. 

There is no reason why this cannot be done in advance of the deal even being agreed.  Which is exactly what we decided to do after having experienced a buyer who had the money, had been buying, and for who we had taken references.  However, he didn’t do the due diligence in regards to the commercials of the deal or the potential tax liability within the company he was buying.  When this surfaced he used this issue to try to chip the price down, without even taking the trouble to understand this was actually a non issue, if he had analysed the cash flow of the numbers. 

This led us to ensure the full information was made available, from a planning, legal and corporate view point; for anybody who had provided proof of funds, and where we were convinced we were dealing with the principals or authorised agents only.  This reduces the probability of aborted sales, and ensures buyers are coming in with their eyes wide open.  Agents in general will not do this as it requires knowledge in all three departments.  Instead they prefer to get the deal agreed, and let the information surface later. 


Agony Agent Is Here To Help!

Q:  My tenant wants me to pay £300 for a new curtain!  So, I went to perform a routine inspection in a property last month.  The property was fine.  While I was talking to my tenant, she mentioned that the curtain in the kitchen, which hangs in front of the sliding patio doors is filthy, and always has been, so she wondered if she could replace it.  The property wasn’t furnished, but it did come with that one curtain.  She didn’t insist, or even ask for me to pay for the replacement (probably because I’m not obliged to), but as a gesture of goodwill and to show appreciation, I offered to cover the cost.  A few days ago, I received a phone call from my tenant, and she informed me she got a quote for £286.  At first, I thought it was a joke, but it soon became clear the situation was very real when she started to enthusiastically discuss the finer details of the fabric!  In the meantime, my mind was busy conjuring up ways to buy some time, in order to process what was happening; so, I asked her if I could look online to see what I thought of them. 

She provided me with the details, but to be honest, I don’t care what the curtain looks or feels like, I’m just concerned that she wants me to pay £300 for one curtain. Bearing in mind that the current curtain couldn’t have cost more than £80, and I assumed a replacement would cost about £100, maybe a bit more.  The property isn’t a luxury penthouse in Knightsbridge; it’s a 2-bedroom mid-terrace, situated in a small town, that’s fitted with economy household goods.  I know for a fact she wouldn’t pay £300 herself for the curtains, but she clearly has no qualms with asking me to cough up the doe.  Don’t get me wrong, she’s a great tenant, she pays the bills and takes care of the property; and I would happily invest in the property where appropriate.  What should I do?

A:  Hindsight is always a wonderful thing!  When you asked the tenant to get a quote, you should have discussed the budget with her.  Keep this in mind for next time. 

Possible Solutions

I would recommend that you either:

l Clarify that you are only willing to pay £100, as you think that’s a reasonable amount

l Offer to contribute £100 towards the curtain, and allow her to cover any differences, on condition that the curtain remains in the property after she vacates

Has anyone else ever had cheeky/ridiculous requests from tenants?  We would love to hear from you.

Richard Bond

Lettings Manager

Sow & Reap

comments powered by Disqus

to the free, weekly Asian Voice email newsletter