What happens to the Property manager when a building is sold? I am currently managing a 50+ unit building and I just learned that the building is now in escrow. The property management company I work for will not have a position for me once this building is so yet they seem to get the impression that the new buyers will keep me on. The buyers are actually renovating the building so they will be kicking out all the current tenants. My manager seems to think that it will be a long process and they will need me to stay and care for the building during this time. What is the precedent here?
- Los Angeles, California
Your situation is a little murky, because the way I read your letter, you are an employee of a management company that has a contract with the current building owners, but you don’t have that contract yourself. So there are two levels to look at: The relationship of your employer with both the old and the new owners and how that contract transitions from one owner to the next. Then the next level to look at is your continued employment with the management firm.
Let’s look at it from your employers’ perspective:
When anyone buys a company or property from another, there are two ways to do it: You can do it via a stock sale or an asset sale.
In a stock sale, the buyer is just buying all the shares of the company. The ownership of the assets doesn’t change: If the buyer is buying the shares of the ABC corporation, and the ABC corporation happens to own your building, then the ABC corporation continues to own your building. The owners of the ABC building are selling their shares in the company to the buyers. The building just comes along with the shares.
In an asset sale, the shares of the ABC Corporation still stay with the original owners. The buyers just pay cash – either to the owners directly or to the ABC Corporation – and the property becomes theirs.
The difference is important because of the ramifications of contracts: If you buy a corporation, you take on all the assets of the corporation and all the liabilities. That includes all the contracts. If there’s an asset sale, the contract remains in force, and that includes the contract the old property owners have with your management company.
If the sale was not a stock sale, but an asset sale, then the contract doesn’t go away… it just becomes separated from the property. From an accounting point of view, your employer’s contract with the company remains as a liability on the old owners’ balance sheet (and as an asset on your employers’ balance sheet.)
Unless your employer agrees to something different, the contract still applies either way – and whoever still has the management contract is responsible for either the remaining payments, or for executing whatever contract termination provisions exist in the contract.
Asset sales and stock sales have different tax consequences that aren’t relevant here… the important thing to remember is what happens to the company’s liabilities (e.g., a forward contract for property management services) in the different kinds of sales.
More information about asset versus stock sales in general is available here.
There are a couple of layers of complexity here… it could come to pass that your employer held a contract with a parent company who sold a subsidiary company – so your contract could remain with the old owners even though the buyers bought the stock of a subsidiary company that owned the property but not your contract. But you get the idea.
No matter how the property was acquired – in an asset sale or a stock sale – the contract doesn’t disappear. It just becomes the responsibility of a new set of people. They either have to follow through and finish the term of the contract, pay the cancellation fee – whatever your employer negotiated when they were writing up the contract – or they will default, in which case your employer may well file suit to recover the missing payments.
At that point, your employer becomes like any landlord enforcing a lease contract: The other party is responsible for payments for the rest of the lease!
Now, on to your situation specifically: It seems to me your employer has been talking with their client, and if the seller’s understanding is that the buyer plans to keep you on board through the renovation procedure, that may well be the best information to go on. That hints to me that the new owners are picking up the management contract – at least for a while.
Here’s what I’d find out: Figure out who the buyer is. Look up what other properties they own. If the same company manages them all, your job could be in trouble. The new owner has their own management company that they like to work with. If I were in your shoes, I’d get my resume to them. They probably don’t want to reinvent the wheel and it would be good for them to have some continuity on the project, if you’ve been doing a good job.
On the other hand, if your employer has entrusted you with a 50+ unit building, they probably want to keep you. That kind of experience and demonstrated trustworthiness doesn’t grow on trees. If your employer expects the new owners to keep you on board at least through the lengthy renovation process, they are probably scrambling to find a new contract to replace the one you might lose – and keep you on board.
This is where it helps to be a rainmaker for your company. Do you have any contacts to put to work? Can you help with the process of finding a new property to manage? Now’s the time to put those skills to work!