Protection of forward bookings – some practical advice
This article deals with a subject that regularly crops up at ARAMA forums. A manager in a holiday letting complex can be in a difficult situation if an owner of a unit in the letting pool sells the unit to a buyer who for some reason does not want the unit to remain in the letting pool.
The Property Agents and Motor Dealers legislation allows unit owners to terminate a letting agency appointment on 90 days notice. In the case of the REIQ form of appointment it allows the unit owner to terminate on 30 days notice in the event of a sale of the unit. This creates practical difficulties, because in many cases holiday letting bookings are taken up to a year in advance.
If an outgoing unit owner signs a contract to sell the unit and the contract does not oblige the buyer to honour forward bookings the outgoing unit owner loses control over this situation. A manager acts as agent for the letting unit owner. If a manager acting in accordance with the written appointment by a unit owner takes advance bookings for the unit, then it is likely that legal liability for claims by holiday renters, if forward bookings are not honoured, because the outgoing unit owner has sold the unit, would be passed on to the outgoing unit owner.
However, the old saying that prevention is better than a cure certainly applies to these situations. There are a number of practical steps that a manager, as letting agent, can take to try and prevent these situations from occurring.
• Use an appointment to act as a letting agent that allows you to take forward bookings; requires the unit owners to notify you if the unit is listed for sale; and requires the unit owner to obtain an agreement in your favour from any buyer to honour forward bookings. The standard REIQ and ARAMA forms of appointment contain these types of provisions.
• As soon as unit owners sign an appointment, and at regular intervals after that, remind them of their obligations to you in the event of the sale of their unit and the importance of special conditions being added to a sale contract to cover these obligations before they sign the contract.
• Keep letting unit owners advised of forward bookings for their unit;
• Obtain a full real estate agent’s licence or align yourself with selling agents who will do their best to sell to an investor and are not likely to poach the unit for their rent roll. Encourage letting unit owners, if they wish to sell their unit to use you, if you have a full licence or these selling agents.
It is likely that a new owner of a letting unit will be bound by lettings that are actually taking place when the sale of the unit settles. Forward bookings are probably not binding on the new owner unless the new owner has signed an agreement in the manager’s favour to honour forward bookings. Before complying with the new owner’s instructions (such as a request to hand over keys) you are entitled to receive evidence that the purchase of the unit has been completed. This would usually take the form of written advices from the seller and the buyer or their respective solicitors.
