HMRC recently announced that they had fined 167 estate agents almost £1 million for failing to comply with the AML regulations. They are obviously stepping up their enforcement of the regulations, but I wonder how many more estate agents still do not comply with the rules. This is a problem that we frequently pick up when we are preparing businesses to go onto the market for sale.

My own business has been registered for AML for many years, and it probably costs us £30,000 a year to comply with the legislation. It is easy to think of the rules as a great inconvenience. We have never yet come across anyone who is trying to launder the proceeds of their criminal activity by buying a letting agency.

Nevertheless, the AML checks that we must carry out by law on both buyers and sellers of the letting agencies that we sell do often serve a very useful purpose.

Who owns the business?

We dealt a case last year where a lady had got divorced many years ago and the divorce settlement was meant to give her ex-husband the family home and allow her to keep her letting agency. Unfortunately, unbeknown to our client, the solicitor who dealt with her divorce failed to register the change of shareholder at Companies House and consequently, her husband still owned 50% of a multi-million pound letting business.

Because of this, we could not put the business onto the market until the ownership of the shares had been resolved. Imagine what would have happened if we had not discovered this. A great deal of time would have been wasted marketing an unsaleable business and the buyer could easily have wasted many thousands of pounds on legal fees trying to buy a business that did not legally belong to the person who was selling it.

The accountant misspelt her first name when the shares were registered. It took many weeks to correct the mistake.”

We had another case where the owner’s wife had been made a shareholder a few years ago for reasons of tax efficiency and the accountant who dealt with the share transfer misspelt her first name when the shares were registered. It took many weeks to correct the mistake but at least we were able to deal with it before the business went on to the market rather than having a panic just before the sale was due to complete.

Held to ransom

A third case Involved a business with a minority shareholder. The shareholder agreement should have had a drag and tag clause which would have prevented them from refusing to agree to a sale of the business. Unfortunately, the solicitor who drafted the agreement failed to put this in which meant that the minority shareholder was able to hold the owner to ransom.

Because we discovered this in good time the owner was able to negotiate a settlement with the minority shareholder before the business went to market. If we had not spotted this at the outset, the cost of dealing with this matter would have been far higher.

When HMRC first made it mandatory for business transfer agents to be registered for AML we were very cross about the extra bureaucracy and cost that was involved. However, over the years we have come to understand why the regulations were introduced and how they can be of genuine benefit to our business and to our clients.

Adam Walker is a consultant and business transfer specialist with 40 years’ experience in the residential property industry.