As a management company owner, your company is likely your most significant financial asset. When considering your net worth, your business is probably the most substantial line item.
Financial planners often estimate it constitutes 80-90% of your net worth. However, this worth is only valuable if it can be transferred. The easier it is to transfer, the more value you will receive.
So, what makes a management company easily transferable?
Since the largest asset of your company is the management contracts, the ease of assigning these contracts to a buyer is key.
Depending on your location and the last time you revised your contract, it may state that the contract is not assignable or not assignable without consent. Either of these provisions will, at best, increase your work to obtain the necessary consent or, at worst, reduce the value of your company if you don’t or can’t obtain consent.
There are several ways to address assignability in your management contracts. To increase the value of your company, it is essential that your contract makes assignments as easy as possible.
Below are several provisions that are preferred over assignment by consent or prohibition of assignments:
Generic Assignment
This contract shall be fully binding and insure to the benefit of the parties and their successors or assigns.
Specific Assignment
This agreement may be assigned to another party by the Management Company without the provision of prior notice or prior consent of the Association.
Limited Assignment
This Agreement shall be binding upon and insure to the benefit of the successors and assigns of the Management Company and the heirs, administrators, successors, and assigns of the Association.
Notwithstanding, the Management Company shall not assign its interest under this Agreement except in connection with the sale of all or substantially all of the assets of its business.
In the event of such sale, the Management Company shall be released from all liability under this Agreement upon the express assumption of such liability by its assignee.
Silence
In numerous states, a contract is considered fully assignable without the consent of the other party if the contract is silent as to assignability.
Therefore, if you have verified the state law in your jurisdiction, omitting any reference to assignability may be a valid option as well. However, that doesn’t mean you don’t need to have a plan in place to discuss a sale with clients to retain them post-closing.
If you decide to have an assignability provision that requires the consent of the association, you may want to consider modifying it slightly to indicate that if no objection is received within a specified time (e.g. 10 days), consent is deemed provided by the Association.
Ensuring your management contracts are easily assignable is crucial for maximizing the value of your company. By incorporating provisions that facilitate easy assignment, you can make your business more attractive to potential buyers and ensure a smoother transition during a sale.
So, take a moment to review your current management contract and consider updating it to include more favorable assignability provisions.
Consult with a legal professional to ensure your contracts align with state laws and best practices. By doing so, you’ll be better positioned to maximize the value of your business when the time comes to sell.