How to prepare your business for your own demise

Unfortunately, I am often asked to sell businesses for people who are seriously or terminally ill. I am also regularly asked to sell businesses by the relatives of people who have died. These situations are always harrowing to deal with but a recent case was particularly difficult. The owner of a small letting business passed away at the beginning of the Christmas holiday period. His last remaining member of staff had just resigned and her successor was not yet in place. As a consequence, there was no-one to help to manage the situation so his widow emailed all the landlords to inform them that her husband had died and that the letting agency was no longer able to manage their properties.

The bank froze the business account so she was not able to pay rents to landlords…

Initially, she received some nice letters of condolence but within just a few days, she started to receive emails and telephone messages from landlords demanding that she dealt with various urgent matters. The poor lady knew nothing about how to run a letting agency and besides all she wanted to do was to grieve for her lost husband.

If her husband had owned a fish and chip shop, it would have been a simple matter to put a notice on the door to explain why the business was closed. The only inconvenience would have been that the customers would have had to go to the kebab shop instead. Unfortunately, because her husband ran a letting agency, it was simply not possible to do this and over the next few days, the problems got increasingly worse and the landlords became increasingly aggressive.

Frozen bank account

The bank froze the business bank account so she was not able to pay rents to the landlords or invoices due to the contractors. Understandably, this caused chaos. A couple of tenants reported urgent repairs and would not accept that no-one was available to deal with them. A tenant who was due to move into a new property became incandescent with rage when he was told that he could not move in because no-one was available to deal with the paperwork. The angriest person of all was a landlord whose gas safety inspection was missed. He threatened to sue the agency for any fines or losses that he incurred as a result of the gas safety certificate expiring. This was a horrible way to deal with a recently widowed lady but legally he was right.

Very few letting agents realise that their obligations to their clients continue even after their death and it would be legally possible for clients to pursue their former letting agents and the executors of their estate for damages.

Contingency plans

The lesson that I have learned from this unfortunate case is how important it is for every letting agent to put contingency plans in place in case the worse happens to them. Bank accounts should be in joint names so that the bank cannot freeze them. A written contingency plan needs to be prepared setting out how the business should be run after their death and where all the key documents are stored. It also needs the basics such as computer passwords and log-in codes. Finally, it should list the contact numbers for some of the recruitment agencies who can provide temporary staff to run the business in the case of an emergency. In addition, of course, every business owner should have an up to date will (and so should everyone else).

We were not asked to help with this case until two weeks after the business owner had died but fortunately we were able to resolve it very quickly. We referred them to one of our regular buyers who had an office in the local area and they were able to take over the management of the properties within 72-hours.

The business could not be sold until probate was granted and by then, of course, there would be nothing left to sell. In view of this, we arranged for solicitors to draw up a formal Introducer Agreement with an option to purchase the business as soon as probate was granted.

The result is that the properties are now being properly managed again, the family will receive some value for the business and the threat of expensive legal action against the agent has been mitigated. This is, however, a cautionary tale for all letting agents and indeed for owners of any business in any other sector.

Adam Walker is a management consultant and business transfer agent who has specialised in the property sector for more than forty years. www.adamjwalker.co.uk