Know your client

 

A few months ago we were contacted out the blue by someone asking for our help. They told us they owned the freehold of 101 units and wanted to try and off load the flats as a bulk purchase. 

Of course we offered to help, as we know investors looking for that kind of deal and in return for assisting, got ourselves signed up as managing agents once the site was fully built out.

We did some initial diligence on the client and had our concerns but they seemed to produce what we needed when we asked, so we gave them the benefit of the doubt and started to speak with potential buyers.

Offers were arriving but something didn't add up. It was the easiest win of our business life and we were being pestered to get heads of terms signed quickly, for a client we had only met in a hotel bar.

So we asked to meet the client on site, which he did. As soon as we met him it became apparent things weren't quite right. His knowledge of the site was minimal, his understanding of landlord and tenant non existent, and we were only allowed to view the site only from afar. 

The site in question was clearly not a site where you could sell 101 units in bulk. For starters, it was a site with 202 units with shared facilities, and there was a sales office in place already with units sold in both parts. The ability to bulk sell an entire self contained block was impossible.

On return to our offices we did some digging. It became clear this was fraud. The gentleman in question was trying to pass off a site that simply didn't belong to him. He had everything that made the deal look bona fide - solicitors details, plans, titles, overseas investors etc. But you can't sell something you don't own, and with it went our expected management fee.

We reported it to the police, as is required under our RICS regulation (ethics code) but there was little they could do as we were not the owner and at that point, no money had exchanged hands, but that was down to our diligence. 

So we learned a really valuable lesson that day - if a deal looks to good to be true, it probably is. Also, in our eagerness to secure a new client we must temper it with careful checking before we spend time and resources on it. In short - do your KYC (Know Your Client) checks and do them early. On the upside though, through our investigations we got to speak to the actual land owner and while our appointment on that scheme was not possible (another agent already appointed), our persistence to uncover the potential fraud paid off, as we have been invited to assist with future projects. All's well that ends well, as they say.