When you sell a letting agency, the sale agreement is not a single document. It is a suite of documents that together transfer the managed portfolio, the employees, and the legal rights of the business to the buyer. Understanding what each document does — and where the commercial risk sits within each one — is the difference between a deal that completes cleanly and one that generates disputes for years after you have left.
This guide explains the document set used in a lettings portfolio sale, walks through the key sections of the Asset Purchase Agreement, examines the earn-out schedule in detail, and identifies the clauses sellers should scrutinise most carefully. For context on the wider transaction, see how to sell your estate agency.
The Document Set
A lettings agency sale typically completes with five core documents:
The Asset Purchase Agreement (APA) is the main agreement. It defines what is being sold, the purchase price mechanics, the conditions that must be satisfied before completion, the representations the seller makes about the business, and the protections each party has after the sale.
The Deed of Assignment of Management Agreements transfers the managed landlord relationships from seller to buyer. Management agreements are contractual rights, not automatically transferable. The deed gives the buyer legal title to the portfolio.
TUPE Documentation comprises the employee liability information, the notification letters required under the Transfer of Undertakings (Protection of Employment) Regulations 2006, and the employee consultation records. This is a statutory obligation, not an optional pack.
The Earn-Out Schedule is attached to the APA as a schedule and defines, in granular detail, how the deferred consideration is calculated, what AMFI means for the purposes of the earn-out, and what obligations run on both parties during the earn-out period.
The Disclosure Letter is the seller’s written statement of anything that makes a warranty in the APA untrue. Matters that are fairly disclosed cannot form the basis of a warranty claim. This document is the seller’s primary post-completion protection.
The Asset Purchase Agreement: Key Sections
Consideration and Price Structure
The APA sets out the purchase price in full: the completion payment, the amount deferred into the earn-out, any vendor loan arrangements, and the mechanism for adjusting the price based on completion accounts. The headline figure is anchored to the AMFI at completion, multiplied by the agreed multiple. Both the AMFI figure used and the multiple should match what was agreed in heads of terms.
Conditions Precedent
Before completion can take place, certain conditions must be satisfied. In a lettings agency sale these typically include: the buyer’s management agreement due diligence returning a result consistent with the agreed AMFI, financing being confirmed by the buyer’s lenders, and TUPE obligations being completed on the timeline required by statute. The APA will specify a long-stop date: the deadline by which all conditions must be met. If conditions are not satisfied by the long-stop, either party may elect to terminate.
Management Agreement Warranties
The warranties on the managed portfolio are the commercial heart of the APA. The seller warrants that every management agreement in the agreed portfolio register:
- Is current, signed, and legally enforceable
- Accurately reflects the management fee rate used in the AMFI calculation
- Contains no undisclosed side arrangements with the landlord (informal fee concessions, verbal arrangements to waive fees)
- Has not been subject to a termination notice from the landlord, whether or not that notice has been formally confirmed
A warranty breach on even a small number of agreements can produce a disproportionate financial consequence if those agreements represent material AMFI. Sellers should audit every agreement before instructing solicitors.
Financial Warranties
The seller warrants that the management accounts used to derive the AMFI figure give a true and fair view of the business’s trading performance, that the accounts contain no material misstatement, and that there has been no material adverse change in the business between the accounts date and completion. These warranties are tested primarily through the earn-out mechanism — if AMFI underperforms, the financial warranty may be invoked in conjunction with the earn-out shortfall.
Regulatory Compliance Warranties
For a letting agency, regulatory compliance warranties cover three areas:
Client Money Protection. The seller warrants that they hold a current, valid CMP scheme membership, that all client funds are properly segregated, and that there are no outstanding claims against the CMP scheme arising from the seller’s management of client accounts.
Property Redress Scheme. The seller warrants that the business is a registered member of an approved property redress scheme and that no material complaints are outstanding.
Client Account Compliance. The seller warrants that client accounts have been maintained in accordance with applicable regulations throughout the trading period covered by the accounts. Any mixing of client and business funds — even if inadvertent and remediated — should be disclosed in the disclosure letter, not left as an undisclosed warranty breach.
Employment Warranties
The employment warranties confirm that the employee schedule attached to the APA accurately represents all employees of the business, that there are no undisclosed tribunal claims or grievances, and that all employment contracts comply with applicable legislation. TUPE transfers employees automatically on their existing terms: any gap between the warranted position and the actual employment terms will be the seller’s liability.
Warranty Limitations
The APA will include a limitations schedule that caps the seller’s total liability for warranty claims. Standard terms include: a financial cap equal to the headline purchase price; a time limit of 18 to 24 months for general warranty claims; a de minimis threshold below which individual claims are not pursued; and an aggregate basket below which no claim may be brought. These limitations are heavily negotiated and directly affect how much risk the seller retains after completion.
Restrictive Covenants
The seller will be bound by post-completion restrictions covering non-compete (typically 12–24 months in the territory serviced by the business), non-solicitation of clients, non-solicitation of staff, and non-disparagement. These restrictions must be proportionate to be enforceable: a geographic scope wider than the seller’s actual operating territory may not be upheld by a court.
The Earn-Out Schedule in Detail
The earn-out schedule is the most commercially significant document in the transaction for most sellers, because it determines what portion of the headline price they will ultimately receive.
AMFI Definition
The earn-out schedule must define AMFI with precision, and that definition must be consistent with the management accounts that were presented during the sale process. A definition that includes or excludes different fee categories from the version used in the accounts will produce a different earn-out AMFI figure from the one both parties anticipated.
What Must Be Excluded
The schedule should explicitly exclude from the earn-out AMFI calculation: overhead allocations charged to the business by the buyer post-completion; income from gap properties (vacants at the measurement date); and income from portfolios acquired by the buyer after completion and subsequently merged into the business. Including buyer-introduced costs or merged income would allow the buyer to manipulate the earn-out denominator.
Calculation Methodology
Sellers should resist a cash-based AMFI calculation where the business has historically operated on an accruals basis. A cash calculation made mid-earn-out period can recognise income from one period in a different measurement year, producing a distorted result. The methodology should be consistent with the management accounts and stated explicitly in the schedule.
Non-Interference Obligations
The earn-out schedule should contain specific obligations on the buyer not to take actions within their control that cause AMFI to fall — including reducing management fee rates, allowing key property managers to leave without replacement, or varying management agreements unilaterally. Crucially, these obligations should be limited to matters within the buyer’s control. A seller cannot be held responsible for a landlord who sells their property independently of anything the buyer does.
Collar Mechanics
A collar provides a floor and ceiling on the earn-out outcome. A proportional structure pays the deferred consideration in proportion to AMFI achieved relative to the target. Sellers should resist cliff structures that pay zero below a threshold — a single landlord departure could eliminate the entire deferred consideration. If a collar is unavoidable, negotiate a floor no lower than 80% of the target AMFI before any earn-out is forfeited.
Warranty vs Indemnity
The distinction matters at claim stage. A warranty breach claim requires the buyer to demonstrate loss — to show that the breach caused financial damage that can be quantified. An indemnity is a direct obligation to pay a specified sum on the occurrence of a specified event, without requiring proof of loss.
Indemnities are typically used for specific, identifiable risks where the quantum of loss is definable in advance: tax liabilities arising before completion, costs arising from a specific employment claim that was identified in due diligence, or losses arising from the client account regulatory position. Buyers who discover a problem in due diligence will generally seek an indemnity rather than a warranty, because an indemnity is simpler to enforce.
What Sellers Should Watch For
AMFI Definition in the Earn-Out Schedule. Check that the earn-out AMFI definition matches the definition in the management accounts and in the heads of terms. A mismatch is not always deliberate — it can arise from drafting without reference to the accounts. Either way, it produces a dispute at measurement date.
Client Account Indemnity Scope. Buyers routinely seek broad indemnities over the client account position — covering any liability arising from client account compliance for the entire period prior to completion. Sellers should insist on a cap (typically the headline purchase price or the completion payment) and a time limit (12–24 months from completion). An uncapped, time-unlimited client account indemnity is disproportionate where the actual risk has been properly verified in due diligence.
Deed of Assignment Mechanics. Management agreements that contain a change-of-control clause can be assigned by deed without approaching each landlord individually. Agreements without such a clause require individual landlord consent for a valid novation. Where a material portion of the portfolio sits in the latter category, the seller and buyer must agree — before the APA is signed — on the process for obtaining those consents and what happens to agreements where consent is refused.
TUPE Obligations: Process and Timeline. TUPE requires the seller to provide the buyer with employee liability information at least 28 days before the transfer date, and to complete employee consultation in accordance with statutory requirements. Sellers who have not audited their employee records before going to market risk a last-minute gap in the TUPE pack, which can delay completion or give the buyer grounds to seek an employment indemnity.
For guidance on the documentation stage that precedes the APA, see our full guide on heads of terms for an estate agency sale.
Frequently Asked Questions
What is an Asset Purchase Agreement in a letting agency sale?
An Asset Purchase Agreement is the main sale document that transfers the assets of the letting agency — including the managed portfolio, goodwill, equipment, and business name — to the buyer. It sets out the purchase price, conditions, warranties, and post-completion obligations of both parties.
What does the earn-out schedule cover?
The earn-out schedule defines how the deferred portion of the purchase price is calculated. It specifies the AMFI definition, the measurement methodology, exclusions from the calculation, the seller’s non-interference obligations, and the mechanism for resolving disputes about the earn-out accounts.
What is AMFI and why does its definition matter?
AMFI is Annual Management Fee Income — the recurring fees generated by the managed landlord portfolio. Its definition in the earn-out schedule must precisely specify which fees count, whether measurement is on a cash or accruals basis, what the agreed baseline is, and what is excluded. A vague definition is the most common source of earn-out disputes.
What is the difference between a warranty and an indemnity?
A warranty claim requires the buyer to prove they suffered a loss caused by the breach. An indemnity is triggered by the occurrence of a specified event, without requiring proof of loss. Indemnities are typically sought for specific identified risks and are harder for sellers to defend against once triggered.
What should sellers check in the deed of assignment?
The deed of assignment transfers management agreements to the buyer. Sellers should check whether agreements require individual landlord consent for transfer and ensure there is a clear process in place — agreed before signing — for obtaining those consents where needed. Agreements where consent cannot be obtained may need to be excluded from the AMFI base.
When must TUPE obligations be completed?
Employee liability information must be provided to the buyer at least 28 days before the transfer date. Seller employee consultation obligations under TUPE must also be completed in accordance with statute before the transfer. Failure to comply can result in tribunal awards and may give the buyer grounds to seek a specific indemnity.