Is your motel, tourist park or hostel ready for sale?
We often say to our accommodation industry clients that listing your motel, tourist park or hostel for sale is the easy bit.
Seeing an offer mature into a contract and then ultimately settle, requires good preparation on the part of today’s seller. In an age where buyers are more informed than ever, the old saying of making sure ‘your house is in order’ has never rung truer.
While every motel, tourist park, hostel or other accommodation business is unique in its own way, turning your mind to the following items can ensure your sale process is cost effective and as stress-free as possible.
Advise the landlord
If you’re selling a leasehold business, ensure that you discuss the sale with the landlord. The sale will not only impact the landlord’s investment but most leases will contain a first right of refusal giving the landlord the opportunity to purchase the business before a third party – this is usually a 14-day period. Although some landlord’s will require a copy of a signed contract before making a decision of whether or not to buy, gauging your landlord’s intentions can save valuable time and effort.
Similarly, if you’re selling a freehold interest, thoroughly review your lease, as your tenant may also have a first right of refusal to purchase the land.
Notify your bank
If you’ve financed either your leasehold business or freehold interest, it is important to notify your bank of your intention to sell and provide your bank details to your lawyer.
In most cases, it will be necessary to release both a mortgage and a personal property security interest (PPSR interest). Arranging the relevant release paperwork may take some time, so notifying all the relevant parties early can avoid unnecessary contract extensions.
Rent
For leasehold businesses, it is essential that your rent and other financial obligations are paid up to date. This is necessary to ensure you have the right to sell your business, and reinforces the buyer’s confidence in your figures. Current rent and recent increase information should be available to your selling agent to ensure there are no misunderstandings on the part of the buyer.
Advise the selling agent if you have any agreed rent concessions or rent free periods.
Figures
Prior to listing your leasehold business or freehold interest for sale, have your accountant prepare up to date profit and loss figures for the motel, tourist park or hostel. All prudent buyers will ask for figures before proceeding with the purchase. Having figures professionally prepared also ensures that you are getting the best price possible for your investment – we’ve had many encounters with sellers who, in preparing their own numbers, underestimated their net profit to their own detriment.
Inventory
Prepare your inventory listing all items to be passed to the buyer on the sale of your motel, tourist park or hostel. Resist the urge to simply rely on the inventory your predecessor may have given you at the time of your purchase. If you are selling a freehold interest, you should list any property that is not owned by the tenant. The best inventories we see are those split into each room, cabin etc.
All inventory items will be assumed to be owned outright unless otherwise noted. If you have finance or lease any items included in the sale, these should be noted on the inventory together with any lease/chattel mortgage agreements. If they are not, you will be expected to pay them out at settlement so they are passed to the buyer free of debt.
Asbestos
Given the rising cost of asbestos removal and the health issues associated with asbestos exposure, buyers have an increasing expectation that a motel, tourist park or hostel will comply with the onerous asbestos legislation. Unless a report has been commissioned in the past that confirms the property is free of asbestos (and importantly, that this report is available to a buyer), satisfactory written evidence will need to be obtained for all buildings built before 2003 either confirming the absence of asbestos or that any existing asbestos materials are safe and undisturbed.
If asbestos exists, a new report is required at least once every five years.
Certificate of classification/occupancy
Different to land zoning, a certificate of classification or occupancy confirms that accommodation buildings are approved and appropriately classified under the Building Code of Australia. Often older motels, tourist parks and hostels (before certificates became standard) will not have been issued with any such a certificate. If this is the case a building record search (or similar search) through council can often obtain the necessary information to appease a buyer.
Copies of your certificates should always be on hand upon request, and should reflect the number of units in the motel for example. This will help expedite buyer due diligence.
Website and intellectual property
In today’s digitally driven accommodation industry, websites, social media pages (Facebook and TripAdvisor), business names and even trademarks, are important profit drivers for an accommodation business, and rightly attract attention from buyers and their advisors. All buyers will require the transfer of the domain name (and website) at settlement, so ensure you have your web provider details on hand. It can be well worth confirming that your domain name is both owned and controlled by you. If not, anticipate it will be raised as an issue by the buyer.
And don’t forget – it is essential that Google Maps correctly pinpoints the position of your accommodation business; otherwise the operator next door might be serving breakfast to your customer.
The regulation of business names has now been centralised from a state system to the Australian Securities and Investments Commission in Canberra. You will need to contact ASIC to obtain your personalised ‘ASIC key’ to transfer the business name to the buyer on settlement.
Fire safety
As an accommodation provider, you are required to have all your fire equipment serviced regularly. This should include fire extinguishers, fire blankets, chemical powders, smoke detectors and fire hose reels. Some local fire departments will conduct an inspection for a fee, however this is becoming less frequent as private companies have flooded the market.
Buyers will often ask for a fire safety inspection which confirms the premises are compliant and that all appropriate safety signage is visible. This can be obtained from private fire compliance companies.
Test and tag of electrical items
Test and tag is the process of visually inspecting and electrically testing equipment that is currently being used. This process ensures the electrical equipment is safe for use.
Engaging a certified electrician to carry out testing and tagging can be an expensive experience. To save money, nationally recognised test and tag courses can be undertaken in a single day for as little as $495 per person. Upon successful completion of a course, you will be deemed as a “competent person” to test and tag to Australian Standards 3760 and 3012. If you have not had your electrical items tested and tagged, disclose this promptly to the selling agent and buyer so that the buyer can be directed that testing and tagging will be a matter for the buyer post settlement.
General paperwork
Make sure you have separate copies of all documentation relating to the motel, tourist park or hostel, including service agreements, signage agreements and any certificates and licences. This would include copies of your business name certificate, lease, most recent pest inspection report, fire safety report, trade waste information, food safety certificate, land tax certificate (for freehold sellers), pool safety certificate, and liquor licence credentials.
There are many components to a successful and timely sale. Considering the above will ensure an otherwise smooth transaction is not tripped up because of items you could have easily controlled or addressed before proceeding to contract.
