Purchase of Property with Short-Term Accommodation Business

During the past 10 years, we have acted for countless clients seeking to acquire properties trading as a hotel, motel, bed and breakfast, caravan parks and boarding house. When purchasing a property with a short-term accommodation business, it is crucial to undertake due diligence on the property as well as the business.

A subject to due diligence clause can be negotiated with the vendor to provide a period of time where the property is taken off-market to allow you the opportunity to undertake due diligence without the concern of the property being sold to someone else.

During the due diligence period, enquiries should be made to matters including but not limited to the following:

1. Is there a restaurant operated with the short-term accommodation and if so, is there a liquor license;
2. Check the development approval to confirm what is permitted;
3. Whether there are fire safety certificates and reports to confirm any non-compliance;
4. Whether any plant and equipment are leased or subject to finance;
5. Any upfront credit or pre-paid accommodation which needs to be adjusted at settlement;
6. Any short-term leases which need to be reviewed;
7. Any major contracts with suppliers which needs to be transferred; and
8. Building inspections.

If due diligence proves to be unsatisfactory, you can issue a notice to terminate the contract or if satisfactory, proceed with the completion of the contract.

Proper and thorough due diligence will help avoid situations where after a property is purchased, it is discovered that it will require $100,000 to make the property fire compliant, some of the equipment do not belong to the vendor and a section of the property will need to have the roof replaced costing $250,000.

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