A rent roll covers hundreds of properties, renters and owners, and the process to sell it is complex because of all these moving parts.
The risk with an exchange is losing clients immediately after the transaction is announced, which is always inevitable to some extent. Because of this, exchanges include a retention period, giving everyone around six months before numbers are finalised.
At BDH Solutions, we always recommend a retention period be factored into a rent roll exchange and the terms of this period be specified in detail before a contract is signed to prevent confusion and disputes.
Why rent roll exchanges require a retention period
There are several reasons why a retention period is incorporated in a rent‑roll transaction:
Accuracy of value: A rent roll is valued on the basis of ongoing management income. If a number of property owner clients leave management soon after handover, the buyer has paid for income which never eventuates. The retention period makes sense to reflect the true amount the roll is worth.
Transition period: The vendor often remains partly responsible (implicitly or contractually) to support a smooth transition so owners do not depart due to disruption. The buyer is given a “clean air” period to build relationships during the retention period, but may need the vendor’s support to do so.
Behavioural incentive: The vendor has a vested interest in keeping as many clients on the rent roll as possible during the handover. The buyer also must maintain service consistency so owners don’t decide to leave. When you look at it this way, the retention period aligns both parties’ interests.
Typical features of a rent roll exchange retention period
Regardless of whether you are buying or selling, the more prepared you are ahead of the retention period and the more details included in the contract, the better.
A well‑drafted rent‑roll sale agreement will specify the following:
The retention period length (up to 6 months) and the retention amount to be held aside (see below).
Conditions around fee structures during the period.
Service delivery levels for the buyer.
Clear criteria for what constitutes a “lost” property (for example: owner terminates the management agreement, property sells, owner self‑manages) and what is covered by the retention adjustment.
A clause specifying what happens if a property owner engages the new agency to sell their property instead of keeping it under management.
Notification and evidence procedures. Often the buyer must notify the vendor within a set time (e.g. 72 h) of a termination by an owner.
Deposits and releasing funds: After agreeing to purchase a rent roll, we usually recommend the buyer puts down a 10 per cent deposit. Fifteen of the remaining 90 per cent is then put aside as retention-funded settlement money. This makes it easier to make adjustments after six months is up.
What happens during the retention period
From the moment of settlement, the buyer effectively manages the portfolio. Key steps and best practices during the period include:
Maintain exactly the same (or enhanced) service levels so owners experience a seamless transition.
Keep the fees unchanged during the period (fee increases can trigger owners to leave).
Communicate proactively with each property owner, reassure them about the transition, and introduce them to the new management team.
Monitor owner‑attrition weekly or monthly: track how many owners remain, how many have given notice, how many are selling properties.
Ensure management agreements (authorities) are properly transferred, signed, and valid—any gap here increases the risk of attrition.
What “good” retention is in a rent roll exchange
Attrition in a rent‑roll transaction is inevitable: owners may sell their investment properties, decide to self‑manage, or switch agencies.
While it is difficult to find published benchmark attrition figures, aiming for 0‑5 % owner departure during the retention period. By contrast, beyond 15‑20 % attrition starts to significantly impact the value and disrupt the outcome of the exchange.
Working together to reduce attrition
When helping clients negotiate rent roll exchanges, we often encounter confusion about who retains control during the rent roll period and how to mitigate losses.
It’s in everyone’s best interest to keep as many PUMs on the roll as possible during the retention period. With that in mind, these are our tips:
For vendors:
You want as many of your property owners to remain with management until the end of the retention period so any support you can provide to the buyer (and to existing property owners during the transition) will deliver a win/win.
Prior to signing the rent roll exchange contract, you should ensure all management authorities are valid, paperwork is up to date, and owners are well‑informed about the upcoming change. This will reduce loss of PUMs.
Read more: Don’t get caught out at the end of the retention period
For buyers:
The retention period gives you time to confirm a stable portfolio of management income.
Map out a strategy to apply during the retention period to hold onto your PUMs, which includes reaching out to individuals and establishing the new relationship.
Meticulous record‑keeping and monitoring during the period are essential so you can enforce any adjustment rights under the contract based on property owner clients leaving the rent roll.
A clearly defined retention period with all stakeholders being actively involved and supporting each other’s best interests will result in the best outcomes for everyone.
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A common approach is for the buyer to place a 10% deposit, then hold 15% of the remaining amount in retention. The exact figure depends on the terms negotiated.
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Typically, a property is counted as lost if the owner terminates the agreement, sells the property, or decides to self-manage. The contract should spell out these criteria in detail.
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Maintain consistent service, avoid fee changes during the period, and communicate with owners early and often. Building trust with clients quickly is essential to retention.
Aim for less than 5% attrition. Anything beyond 15–20% can significantly impact the agreed value and may lead to disputes or adjustments in the final payout.