Agency Flashcards
RICS doc
RICS UK Commercial Real Estate Agency Professional Statement 2016
Purpose of Agency RICS doc
Sets out framework to ensure agents are working to the highest ethical and professional standards
Focuses on need for ethical practice and transparency in the commercial property market
How many core principles for agents to observe? Name some
12
Act in a fair honest and transparent manner
Ensure client provided with terms of business
Avoid conflicts
Truthful and honest marketing
Hold PII cover
Main piece of legislation
Estate Agents Act 1979
CRIMINAL
Purpose of Estate Agents Act
Ensures agents act in the best interest of the client and both buyers and sellers are treated honestly fairly and promptly
Applicable- sale or purchase of freehold or leasehold property (with a CV)
Main principles to know re: estate agents act
Section 18 – undertake terms of business
Section 21 – Disclosure of a personal interest
Legal obligation to tell client about ALL offers received
Agency Regulations
Consumer Protection Regulations
CRIMINAL
Purpose of CPRs
Relates to business to customer relationship
Extend duty owed to not just the clients but potential clients/viewers/buyers to give accurate and/or necessary material information and not make any misdescriptions in the material
ACCURACY AND TRANSPARENCY OF MARKET INFO
When are CPRs applicable?
Lettings and sales
Unfair practices under CPR
Giving false or misleading information
Hiding or failing to provide information
Exerting undue pressure on consumers
Failing to show professional diligence
Civil Agency Legislation
Misrepresentation Act 1967
Purpose of Misrepresentation Act
Prevent misrepresentation or false statement of fact being made
Agent has a duty of care to ensure all information is correct
Exclusion/disclaimer clauses at bottom of marketing – protects agents and must include date
Size of non-residential board that needs planning consent
Flat board – 2 m²
V board – 2.3 m²
Maximum size of residential board
Flat board – 0.5 m²
V board – 0.6 m²
Cost of non-residential board
£125-£135 plus VAT
When must a board be removed?
14 days after completion of transaction
Four methods of sale
Private treaty
Informal tender
Formal tender
Auction
Private treaty
Parties are free to negotiate in their own time and without commitment in the open market
Informal tender
Best bids process
Agent invites all parties in writing to submit their best of final bid in accordance with the prescribed timescale
Not legally binding until the contract is exchanged
Formal tender
Sealed bids process
Provides a high level of public accountability
Applicants bid blindly in a prescribed form
Legal pack often provided
No opportunity to change or increase the bid once submitted
Auction
Method of sale for unusual property
Sold in an auction room on a prescribed date/time
Contracts exchanged as soon gavel hits the table
Important line when dealing with formal or informal tender
Vendor is under no obligation to accept the highest, best or any bid
Advantages and disadvantages of private treaty
+ Flexibility/parties control process/vendor is not obliged to sell/confidential
- Potential for gazumping/late decision is not to buy
Advantages and disadvantages of informal tender
+ Not legally binding/ability to negotiate further/ good negotiating mechanism to invite interested parties/ confidential
- Longer to exchange/purchaser may drop out
Advantages and disadvantages of formal tender
+ Leads to direct contract for sale/quick exchange/confidential/ high level of public accountability
- No opportunity to bid further/legally binding
Advantages and disadvantages of auction
+ Short timescale to sell/good for unusual property/ good when unsure on value
- Expensive to market/lack of confidentiality/can’t choose purchaser
Types of agency
Sole agent
Joint agent – to a more joint agent sharing fee
Multiple agency – several agents for any successful gets a fee
Sole selling rights
Agent gets fee even if don’t introduce buyer to client
Timeline of sales instruction
CIT AML Info from client and due diligence Check VAT position Inspect/measure Marketing strategy and market appraisal Create marketing particulars Undertake marketing campaign Negotiate sale/HOT/instruct lawyers Liaise with vendors lawyers re:CPSE Assist with queries and issue invoice upon completion of transaction
CPSE
Commercial property standard enquiries
Pre-contractual enquiries e.g. environmental title statutory SDLT
Undertaken by vendor’s solicitors
Cooling off period
14 day period allowed for clients who change their mind and don’t want to instruct agents following signing terms in accordance with CPR
Timeline for property acquisition
CIT
AML
Understand clients objectives and search parameters
Find properties
Measure and undertake market appraisal of property
Undertake due diligence
Negotiation and instruction of solicitors
Conditional contract created
Subject to contract
Important item on heads of terms
Subject to contract
VAT
20%
Usually, sale or lease of property is exempt from VAT
Can be applied to new property if less than three years old, or where landlord is elected for VAT to be charged
TOGC
Transfer of going concern
If property being sold is capable of being run as a property rental business and buyer intends to carry on same type of business, transaction made classed TOGC and VAT not payable
Capital gains tax
Tax and profit when you sell something that’s increased in value
Capital allowances
Tax relief on capital expenditure for construction or purchase of commercial property or business assets (e.g. plant and machinery)
Privity of contract
Contract only between parties included within it i.e. exclude any third-parties benefiting from the contract
Off market transaction
Buyer approach vendor to buy without going to market
Very confidential
Advantages and disadvantages of an off market transaction
+ Freedom in negotiations as no competition/can undertake due diligence without too much risk that cost to undertake is a waste of time
- Need to be sure offering the right amount/getting best price if not openly marketed
Items included in heads of terms (sale)
Subject to contract
Vendor details Purchasers details Property address Description Tenure/ Tenancy Purchase price Funding Deposit VAT Timescales AML checks Conditions
Unconditional offer
Not subject to any conditions
Buy as it is
Conditional offer
Subject to planning/ ground investigations etc
How to determine the difference in a conditional and unconditional offer
Is the uplift in value from unconditional to conditional worth the added risk of the conditions?
If no then go with unconditional
If yes then go with conditional
Leasing v letting
Leasing – acting on behalf of the tenant to acquire space
Letting - acting on behalf of landlord to let out space
Process for leasing
Define approach Market research and analysis Shortlist options and viewings Decision-making Negotiation
Process for letting
Define approach Marketing strategy Branding and marketing Take enquiries and undertake viewings Negotiation
Lease
Formal arrangement providing an occupier with an estate in the relevant land i.e. exclusive occupation
L&T act protection
Four requirements that constitutes a lease
Exclusive occupation
Payment of rent
Duration of the specified term
If more than three years, terms must be in writing, signed and registered as a deed
License
Passes no interest in land and provides only a right to enter/use the property
No L&T act protection
Differences between a lease and license
Case law ?
Lease - exclusive possession
Licence - personal right to use
Lease - can be assigned
Licence - can’t as personal right
Lease - cannot be terminated until expiry
Licence - terminate at any time
Street v Mountford (1985)
Heads of Terms
Summary of an agreement between two parties, used to instruct lawyers to produce actual lease/ contract
(Fall away once lease and formal contract signed)
RICS leasing doc
RICS Code for Leasing Business Premises Professional Statement 2020
Purpose of Code
Improve quality and fairness of negotiation of lease terms and promotes use of new set of comprehensive HOTs to made legal drafting of leases more efficient
Application of code
Both landlords and tenants
Replaces non- RICS code from 2007
Applies to new leases, lease renewals and lease extensions
Mandatory provisions
Negotiations must be approached in constructive and collaborative manner
Party not represented by RICS member must be informed of the code and advised to get representation
Agreement must be written in HOTs and SUBJECT TO CONTRACT
Negotiations must be fair and balanced - have regard to both sides
Result of code
Assists parties in understanding lease and their commitments
Greater transparency of terms and collaboration
Draft HOTs template provides consistency
L&T Act
Landlord and Tenant Act 1954 Part II
Security of Tenure for all commercial leases
When do you get protection from Act?
Section 23
Must be a business tenancy satisfying 6 basic principles
Must be a tenancy Premises must be used for business Must occupy at least part by tenant Occupancy for more than 6 months Must not be an exempt or exclusive tenancy Must have competent landlord
Automatically protected if satisfied
Section 24
Business tenancy under act only ends when party serves a notice
(Unless leave with full VP on lease expiry)
Section 25
Landlords notice to grant or oppose a new lease
Served between 6 and 12 months before date specified in notice
Section 26
Tenants notice to request a new lease
To be served within 6-12 months from date specified for new lease
Section 27
Tenant notice to leave premises
Only to be served after contractual end date ie if holding over
3 months notice
Section 30
Ground for refusal of a new lease
a-g
Persistent delay in paying rent
Redevelopment
Landlord wants to occupy
Contracting out
Section 38A
Reasons to contract out:
Landlord may want to reoccupy/ redevelop in the near future
Landlord wants more flexibility
Contracting out declarations
Simple declaration
Served by Landlord/ must have 14 days or more until lease commencement
Statutory declaration
Served by solicitor to tenant, outlining what going to lose from contracting out
Quicker and if less that 14 days to go
Security measures to protect the investment from taking on the tenant
Rent deposit Rental guarantee (eg parent company)
What do you request from a tenant to confirm their covenant/ financial performance before letting?
Bank, accountant and 2 trade refs
Pervious landlord reference
3 years audited accounts
Lease terms affecting value
Lease length Break clauses Alienation Repairing obligations User clauses Rent review pattern L&T Act Protection
Items in heads of terms (L&L)
SUBJECT TO CONTRACT
Landlord details Tenant details Demise Lease term Break Rent Incentives Service charge VAT Business Rates Alienation Alterations Use Agreement for lease (sign at earliest opportunity) Signage Timescale AML Conditions
