Level 1 Flashcards
What are the 4 methods of sale?
- Private Treaty
- Informal Tender
- Formal Tender
- Auction
Factors affecting method of sale choice
- Clients objectives
- Current+ likely future market conditions
- Likely demand
- Timeframe
What is a Private Treaty transaction?
This is the most common form of transaction in the UK.
It is a private matter and the parties are free of time pressure and negotiate at their discretion.
Advantages of Private Treaty
Controlled by the parties involved, flexible, no obligation for vendor to sell.
Disadvantages of Private Treaty
- Potential for gazumping
- Late decisions not to buy
- associated abortive costs
What is an Informal Tender Transaction?
Used when there’s good interest in a property. It is a ‘best bids’ procedure. Details of a bid include: require date and time of a written offer, confirmation of financial arrangements, name and address of solicitor, any conditions.
What are the key differences between formal and informal tender?
- It is possible that a formal tender leads directly to a contract for sale.
- There is no opportunity for further bidding in a formal tender.
- Bid is less detailed and there is more scope for further negotiation / a second round of bids.
- Informal tender is less onerous and is often used as a mechanism to invite all parties to bid
Whats included when agent asks for best bids in informal tender?
- Date
- name and address of aplicants solicitor
- confirmation of any finance arrangements
- details of any conditions
- confirmation that variable bids will not be considered
- vendor reserves the right not to accept the highest, or any offer made
What is a Formal Tender Transaction?
This is a ‘sealed Bids’ procedure. It’s used to give a high level of public accountability.
Full DD pack needs to be sent. Vendor can state that they are under no obligation to sell.
Full DD pack provided prior to blind bids.
Importantly there is no opportunity for purchasers to change their bid after the first round.
When might you use an Auction? What are the possible downsides?
Auction provides a fast means to sell, useful for properties that are hard to value, certainty of sale is usually higher.
Downsides:
- Auction fees
- Lack of confidentiality
- Vendor cannot chose purchaser
- Short marketing period
What is the procedure for a sale via auction?
Terms of engagement, conflict and AML checks, full DD prior to sale.
All relevant documentation must be available prior to the auction and Memorandum of Sale and notices to bidders are to be published by the auctioneer.
Reserve price to be decided with the vendor.
What are the Three common bases of Agency?
(1) Sole Selling – One Agent
(2) Joint Selling – Two or more, with pre-agreed fee split
(3) Multiple Agency – Multiple agents, only the successful one gets the fee.
Estate Agents Act (1979) (Sections 18 and 21), what must the agency instruction agreement clearly contain?
- Agency Basis (Sole/joint/multiple)
- Agency Rights (sole selling or sole agency)
- Proposed Fee
- Marketing Costs and Disbursements
- Confirmation of no COI
- Money Laundering Regulation Requirements
- Timescale for Payment of Fees
- Details of Firm’s complaints handling procedure
[Must be signed and returned to the agent prior to marketing]
What is the Case Law which the supreme court upheld relating to agency agreements?
WELLS v DEVANI (2019)
It ruled that a “sketchy oral-agreement” constituted a legally binding agency agreement, interpreted in context and taking into account the behaviour of each party.
What is the Difference Between Sole Selling Rights and Sole Agency Rights?
Sole Selling Rights = (Typical) Fee due after contracts are exchanged during a period where sole selling rights exist, even if the purchaser is not found by that agent. A fee is also due for a period after the sole selling rights have expired if the party that purchases the property was one that the agent introduced.
Sole Agency Rights = A fee is only due if the agent introduces the purchaser.
What is a “Ready, Able and Willing Purchasers” Clause, as defined by the Estate Agents Act 1979.
This is a clause that is often included in an agreement so that if there is a party ready, willing and able to transact, and the vendor decides to walk away there is an abortive fee due from the vendor to the agent.
Name Some typical types of entity that acquire properties in the UK?
(1) JPUTs = “Jersey Property Unit Trusts”
(2) REITs = Real Estate Investment Trusts, have certain tax relief, and you qualify as long as 75% of income is from property.
(3) SPVs = Special Purpose Vehicles, limited liability companies established for the purpose of acquiring a real asset in a tax efficient way.
Why may there may be a delay between exchange and completion?
Freeholder consent, funding, other conditions.
What is the legal process?
Once Heads of Terms are finalised they are sent to the respective solicitors.
- The vendor’s solicitors will produce a draft contract for sale and submit to the purchaser’s solicitors for comments.
- They will also provide copies of land registry title docs and other statutory information.
- The buyer’s solicitors will assess the draft contract and supporting documentation and reply with any queries or requests for further information.
- Once contract is agreed between lawyers, contracts can be exchanged and a deposit is usually made by the purchaser. I maintained contact with the lawyers and was available to help with any CPSE (commercial property standard enquiries).
- Completion can be simultaneous or delay due to various reasons e.g. Finalise funding / awaiting planning permission / if LLH freeholder consent / Vacant possession. 3-6 months to Land Reg.
- Completion corporate: Shares transferred, appointment of new directors.
What takes place post-completion?
Asset: SDLT, Land Reg application, Collation of Deeds.
Corporate: Registration at companies house.
What are the tax implications of vacant building?
Not a TOGC so 6.8% purchaser’s costs.
Why are levered IRR returns higher than unlevered?
Debt is cheaper than capital and less equity is committed. If the debt is more expensive than the returns due to high margin (e.g. 5% debt and 4% yield) then levered IRR may be lower than unlevered.
What is the difference between an offer letter and Heads of Terms?
An offer letter is a pre-cursor to Heads of Terms. An offer letter is more descriptive and is an offer and not yet agreed. It will include details on the purchaser, the offer price, funding, conditions, timing and may include information on track record to entice a vendor to select the party.
The HoT’s are more matter of fact and are a legal document that will be signed by both parties once agreed. It includes information such as parties details, their agents and solicitors, the price, conditions and timescale. ‘Subject to Contract’.
Would you accept a bid after the ‘Request for Bids’ date?
Unless stipulated previously then I would accept a bid received after the request for bids date. I have a duty to my client under the Estate Agents Act 1979 to report all offers to my client and have a duty to receive the best deal for any asset as possible.
What are the 7 Key Principles of The Estate Agents Act 1979?
(1) Clarity in the Terms of Agency (Section 18)
(2) Honesty & Accuracy
(3) Agreement and Liability for Costs
(4) Openness Regarding Personal Interests (Section 21)
(5) No Discrimination
(6) Legally requirement to tell client about offers received.
(7) Keep client’s money separate
What does the Misrepresentation Act of 1967 refer to?
The Misrepresentation Act of 1967 refers to false statements or mis-statements, that induce the acquisition of a property during pre-contract enquiries.
The vendor or agent can be sued for negligence and the contract rescinded.
[It is a civil offence actionable in tort, not a criminal offence]
Do you charge VAT on the purchase of a Property?
Generally speaking the Property can be regarded as a Transfer of Going Concern (TOCG), meaning that no VAT is due.
Who enforces the Consumer Protection Regulations (2008)
The Trading Standards Office of the Local Authority. Maximum penalty is unlimited fine and compensation up to £25,000.
What is the “Cooling Off” period for an agency instruction? And what regulation enforces it?
14 days under the Consumer Protection Regulation (2008)
What are the 12 Core Principles Under the UK Commercial Estate Agency (2016) Professional Statement?
(1) Act in an Honest, Fair and Transparent Manner.
(2) Carry out work with due care, skill and diligence. (3) Ensure clear and fair Terms of Business are provided to the client. (4) Do your utmost to avoid Conflicts of Interest. (5) Do not discriminate. (6) Communicate with Clients in a fair, decent and timely manner. (7) All advertising is honest and truthful. (8) Any clients money is held in a separate account and covered adequately by insurance. (9) Hold appropriate Professional Indemnity Insurance.
(10) Make the identity of your client clear to all parties involved.
(11) Give a realistic assessment of selling prices/rents/financial costs based on Market evidence.
(12) Ensure all meetings, inspections and viewings are carried out in accordance with your clients wishes and with regard to the personal safety of attendees.
Which Professional Statement Governs Residential Estate Agency in the UK?
UK Residential Agency (2017), otherwise known as the “blue book”.
What piece of UK Legislation governs UK Estate Agency?
The Estate Agents Act 1979.
What Does Section 18 of the 1979 Estate Agents Act say?
That there needs to be clarity with regard to the terms of the agency. Including all costs and fees highlighted in advance, and the type of agency (Sole Selling Rights for example).
What Does Section 21 of the Estate Agents Act 1979 say?
That you need to be open regarding any personal interests that may affect your work in estate agency. Disclosure of any ‘connected persons’ who may be set to financially gain from the transaction.
What is the Estate Agents (Undesirable Practices) (No 2) Order 1991?
It is an order under the 1979 Estate Agents Act, it states that any services that are to be offered to potential bidders (that are not free of charge) have to be disclosed to the client at the time of agreeing the terms of business.
What is the Estate Agents (Provision of Information) Regulations 1991?
Information must be provided to a client in writing the service to be offered and the fee due.
Under the Consumer Protection Regulations (2008), to whom does the agent owe a duty of care?
The client, the purchaser, any potential purchaser, any potential client, all defined as ‘consumers’.
S.18 Estate Agents Act 1979
Terms of Business
That there needs to be clarity with regard to the terms of the agency. Including all costs and fees highlighted in advance, and the type of agency (Sole Selling Rights for example).
S.21Estate Agents Act 1979
Declaration of personal interests
Whats a cooling off period?
Up to 14 days is allowed for clients who change their minds and do not want to instruct the agent - consumer protection regulation
Tell me about the misrepresentation act 1967
- The act relates to a false statement of fact made by a party which has the effect of inducing the party to purchase
- vendor and or agent can be sued for damages
- Civil offence, actionable as tort
- Agent has a duty of care to check info is reliable
- Leading case is Hedley Byrne & Co Ltd v Heller & Partners 1964
- Refers to test of reasonableness
Tell me about the test of reasonableness
3 tests to decide agents liability for negligent statements
- Forseeability
- Proximity
- Fairness
All FH transactions must have a compliant plan, with 7 details. Name them
- Drawn to metric scale
- scale bar
- scale noted
- include a 1:1250 scale location map
- full address
- north point
- demise in red outlined
