One of the more complex items when buying a vacation home that is already in a rental program is the successful transfer of the business entity and the bookings that are in place.
Although they are usually packaged together by the seller they are two separate items joined together by the common element – the property.
When dealing with the conveyance of the bookings several factors have to be taken into consideration to ensure the best possible outcome is achieved for the buyer, the seller and the guests.
There are several different booking scenarios in play when we look at conveyance:
Property management companies market rental properties on behalf of the owner and usually keep those bookings in an online booking calendar. Management companies source these bookings:
Via their own website.
Via booking websites such as VRBO, AirBB or Trip advisor.
Via agreements they have with wholesale travel agencies such as Virgin or Thompson Holidays or
Via booking marketing companies.
Conveying Management Bookings.
Generally if a new owner continues with the current management company then the bookings in place with the property will convey.
Deposits held will be transferred and the business carries on as it did before.
If the new owner decides not to use the current management company those reservations will most likely be lost.
Many owners supplement the management bookings by doing their own marketing. In some cases they may even compete with their own management company and set up an account of their own via an online marketing company. Many owners only market locally to friends and family or opportunities like their work / office or school notice board and or local newspapers and websites.
Conveying Owner Bookings.
Owner sourced direct bookings such as their local marketing in most cases can convey to any management company.
Owner bookings however that are made though online booking agencies may prove to be more complicated.
VRBO.com for example does not allow reservations to convey between customers so an owner who has bookings through vrbo cannot directly convey to a new owner. Instead the owner may have to inform the guest that their reservation need to be cancelled. If an agreement can be put in place with the new owner it is possible to have the guests re-book the home but this is of course dependent on the buyer and the seller coming to an arrangement to allow this to happen and there is no guarantee guests will re-book.
This particular situation is most difficult when a buyer and seller are under contract for a financed purchase. It places the seller in a difficult situation with regard to putting in place a time frame to notify guests of the sale and subsequent transfer of the booking. The seller has to make a determination how likely the sale is to go thought. The fear for many sellers is that they contact the guests and have them cancel the bookings only to have the sale fall through because of finance issues.
One solution may be to have the parties agree a timeline for the EMD deposit go “hard” and be released to the seller to cover any possible shortfall should the buyers financing fall through at a late stage. It also brings up the question if / when a seller should stop accepting reservations.
Deposits held by the management company can convey to a new buyer.
Deposits held by a seller have to be disclosed if the bookings are to convey and the sum of those monies credited to a buyer at closing.
If the funds are held in a foreign currency they have to be converted to US dollars by calculation most likely 48 hours prior to closing so the title company has a figure to credit. In most cases the current exchange rate from the country of currency to dollars on the FX exchange will be used to calculate the amount.
They key to the successful transfer of the business element and the conveyance of the bookings is to clearly understand what bookings are in place and with who. What deposits are held and how they will convey. Agreements made with the management company, the buyers and seller in conjunction with the guests and time lines set forth for both the buyer and the seller to perform so that all parties in the transaction are aware of the situation and any difficulties that may be ahead depending on the mixture of different scenarios.
The key to this is your representation and putting language and timelines in a purchase contract addendum to account for a smooth transition between owners.
The Jerry Barker Group has successfully conducted many hundreds of vacation home purchases where the conveyance of the business entity and bookings have successfully transferred between a seller to a buyer and have specific language to account for the transfer of such in the purchase contract.
Please contact us directly for additional information or questions you may have on the conveyance of bookings, we would be delighted to help.
Vacation Home Specialist