Protect Your Rent Roll Exchange from Retention Claim Disputes

When you buy or sell a rent roll, it is easy to focus on the purchase price. However, this type of exchange is more complex than a standard asset transaction, and problems can occur after the initial deal is done. Queensland rent roll retention claims determine how much of the sale price is ultimately paid when managements are lost after settlement.

This is because of what’s known as the ‘retention phase’. It’s the final stage in a rent roll exchange and it can be the trickiest if the contract has been rushed or important clauses overlooked.

If you are an agency owner or property manager entering a rent roll transaction, understanding how retention claims work and why your contract needs to be water-tight can help protect your sale and reduce financial risk.

What is a rent roll retention claim?

When a rent roll is sold, a list of properties under management (PUM) is transferred to a new owner. In theory, if the buyer pays for 3,000 PUMs, that should be what they get.

The problem: It is normal for some property owners to decide to take their business elsewhere. This is why a retention period is necessary: to allow time for the final number of properties being exchanged to be determined. The original 3,000 properties negotiated for may end up being 2,800. Typically, buyers withhold a portion of the purchase price after the initial phase of the exchange, which is calculated and released at the end of the retention period based on final figures.

If management is lost during the retention period, the buyer will claim a reduction from the retained amount. But problems arise when it is hard to define who is responsible for the number of properties that leave during the retention period.

Retention clauses are entirely contract-driven. There is a greater chance of disputes arising if the agreement is both unclear and poorly drafted. This is why an experienced lawyer is your strongest weapon during a rent roll exchange.

How does the retention period work?

Retention periods typically run for anywhere between three and twelve months. The exact length usually depends on the size and value of the rent roll, as well as how risk is shared between the buyer and the seller.

Length of the retention period

During this period, the buyer takes over management of the rent roll and monitors any management losses against the benchmarks set out in the contract.

How management losses are assessed

Losses may be reviewed progressively or assessed at the end of the period. If the buyer believes they have a valid claim and that they have not lost a property due to poor management, they must notify the seller within the timeframe specified in the agreement and provide appropriate evidence.

For a more detailed breakdown of how retention clauses work in Queensland rent roll transactions, NPR Law’s rent roll legal guide provides a helpful overview.

What can buyers claim?

The terms of the rent roll exchange contract determine what a buyer is entitled to. This is because claims are typically related to management losses brought on by property owner decisions rather than the buyer’s actions.

When a retention claim may be reduced or denied

For example, if a buyer purchases a rent roll and immediately increases fees, it’s likely that more property owners will leave. So the question is, should the buyer still have to pay the rent roll seller for those properties? After all, it is their actions that have caused the clients to leave.

Leaving these questions unanswered during contract negotiations is what leads to problems and disputes. A thorough contract, for example, will include a clause stating the new buyer cannot make a retention claim if they have increased prices by more than a specified amount.

Supporting a retention claim

Clear records must support retention claims.

As a buyer, you should keep detailed documentation throughout the retention period to demonstrate when and why management was lost.

At a minimum, evidence usually includes:

• Written confirmation of management termination and the reason provided
• Records showing that the management was part of the original settlement rent roll

Without adequate documentation, even a genuine claim may be challenged and the seller may claim they are still entitled to payment for the PUM.

When should you get legal help during a rent roll exchange?

Selling a rent roll is a detailed process and is more complex than a standard property exchange. Unless you have years of experience in this area yourself (and even if you do), you should always seek legal advice before entering a rent roll sale agreement, when negotiating retention clauses, or as soon as management losses occur.