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RICS SL > Level 3 - Purchase and Sale > Flashcards

Level 3 - Purchase and Sale Flashcards

1
Q

What are the 4 main methods of sale?

A
  1. Private Treaty
  2. Formal Tender
  3. Informal Tender
  4. Auction
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2
Q

What is the private treaty method?

A
  • Parties free to negotiate in their own time

- Not open market

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3
Q

What are the advantages of Private treaty?

What are the disadvantages of private treaty?

A

Advantages:

  • Flexibility
  • Parties control the process
  • No obligation to sell
  • Confidential

Disadvantages:

  • potential for gazumping
  • Late decisions not to buy
  • Associated abortive costs
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4
Q

What is the Informal Tender method?

A
  • used when there is good interest in the property

- agent invites parties to submit ‘best and final’ offer or bid with prescribed timescale

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5
Q

What is included in a best and final bids letter?

A
  • date and time for receipt of written offer
  • name/address of solicitor
  • finance arrangements
  • conditions attached to the offer
  • no variable offers considered
  • reserve the right not to accept any offer made
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6
Q

What are the advantages/disadvantages of an informal Tender?

A

Advantage:

  • vendor under no obligation to accept an offer
  • known time period
  • allows for further negotiation

Disadvantage:

  • Not legally binding so either party can withdraw up until contract.
  • doesn’t lead to contract for sale
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7
Q

What is the formal Tender method?

A
  • often used by statutory bodies with high level of public accountability.
  • full marketing material including legal pack must be provided in advance of process
  • applicants bid blindly
  • usually no immediate exchange of contracts
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8
Q

What are the advantages/disadvantages of Formal Tender?

A

Advantages:
- Can speed up the process to exchange contracts

  • vendor can be under no obligation to sell if stated

Disadvantages:

  • No opportunity for further bids
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9
Q

What is the Auction method?

A

The auction method provides a transparent market place where buyers bid against each other.

The highest bidder buys the property.

The buyer has to complete the purchase on stated completion date.

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10
Q

What is a title?

A

It documents your proof of ownership

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11
Q

What is stamp duty land tax (SDLT)?

A

If one buys a property or land over a certain price, one must pay SDLT.

For non-residential properties – over £150,000

Up to £150,000 – Zero SDLT
£150,001-£250,000 – 2% SDLT
Above £250,000 – 5% SDLT

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12
Q

What are capital allowances?

A

Capital allowances that taxpayers write-off cost of certain capital expenditure against taxable income.

You can claim capital allowances when you buy assets that you keep to use in your business such as, plant and machinery.

You can deduct some or all of the value of the item from your profits before you pay tax.

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13
Q

What is capital gains tax?

A

Capital gains tax is a tax on the profit when you sell something that’s increased in value since purchase.

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14
Q

What must agency instruction agreements clearly set out?

A

– Agency basis (sole/joint agency)
– Agency rights ( sole selling or soul agency rights )
– Proposed fee
– Marketing costs and disbursements
– Confirmation of no conflicts
– Money laundering regulation requirements
– Timescale for payment of fees and disbursements
– Details of complaints handling procedure

Terms of engagement must be signed and returned before marketing can commence.

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15
Q

What are sole selling rights?

A

Sole selling rights:

It means a fee will be payable when contracts are exchanged even if the purchaser is not found by the agent.

It means a fee will be payable if the property is sold to a purchaser who was introduced by the agent during period of sole selling rights.

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16
Q

What is a ‘ready able and willing purchaser’ clause?

A

It is when an applicant is ready and able to proceed with the purchase but the client withdraws and an abortive fee may be charged by the agent.

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17
Q

What are the types/bases of estate agency?

A

Sole agency: one agent

Joint agency: two or more agents sharing a pre agreed fee.

Multiple agency: any number of agents – only successful agent gets fee

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18
Q

Tell me about the timeline and what the process of a sales instruction includes?

A 
Instructions
Competence/independence
Terms of engagement
Receive signed agreement
Money-laundering checks
Gather information
Due diligence
VAT position
Inspect/measure
Market research
Valuation
Marketing report
Approval of marketing particulars
Marketing campaign
Negotiation of sale, HOTs – instruct lawyers
CPSEs
Assist lawyers
Issue invoice on completion
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19
Q

What are the core principles of the RICS UK commercial estate agency professional statement, 2016?

12 core principles!!!

A
  1. HONESTY, fairness, transparency and professionalism
  2. Due SKILL, care and diligence
  3. TERMS OF BUSINESS - fair and clear with CHP
  4. Avoid CONFLICTS – Deal with them openly and fairly
  5. Don’t DISCRIMINATE unfairly
  6. Client COMMUNICATION - fair, decent, clear, timely and transparent
  7. MARKETING/ADVERTISING – honest/truthful
  8. CLIENT MONEY – held separately with adequate insurance
  9. Hold appropriate PII
  10. IDENTITY OF CLIENT – ensure all parties are clear of obligations
  11. REALISTIC ASSESSMENTS -use market evidence/best professional judgement
  12. MEETINGS - are as per clients wishes - Ensure security and personal safety
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20
Q

What are the advantages/disadvantages of the auction method of sale?

A

Advantages:
– Able to dispose of property quickly
– Certainty of sale
– Space for useful for sale of unusual property which are hard to value accurately
– Good to generate strong level of interest

Disadvantages:
– Cost of promotion
–Lack of confidentiality
– Intense nature of short marketing period

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21
Q

What are the key points of the estate agents act 1979?

Seven key points!!!

A
  1. TERMS of agency (section 18)
  2. HONESTY and accuracy
  3. COSTS - Agreement and liability
  4. PERSONAL INTERESTS (section 21)
  5. Absence of DISCRIMINATION
  6. Inform client about OFFERS received
  7. CLIENTS MONEY held securely
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22
Q

What are the most important points in the estate agents act 1979?

A

Section 18:

Clear terms of agency/business – specify all costs/fees in advance.

Section 21:

Disclosure of personal interests – a connected person who could benefit financially from the transaction.

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23
Q

What does the estate agents act 1979 apply to?

A

Disposal/acquisition of interest in land.

Freehold property

Leasehold property with a capital value

Land

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24
Q

Who polices the estate agents act 1979?

A

Trading standards office of the local authority

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25
Q

What are the penalties for non-compliance with the estate agents act 1979?

A

Warning order

Prohibition order

and/or a fine

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26
Q

What is meant by a cooling off period?

A

This allows clients who no longer wish to instruct an agent to change their minds within 14 days of agreement of terms of business.

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27
Q

What could you typically expect to find on a data site?

A

Data sites provide all necessary and relevant information with regards to a property being sold.

Typically this is organised in a number of subfolders including:

Title documents - Title deed/lease plan
Property management documents
Lease documents - Leases/license for alterations
Survey documents - Asbestos/building surveys
Other/miscellaneous - tenancy schedule/Argus file

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28
Q

What are capital allowances?

A

They are a form of tax relief upon capital expenditure for construction/purchase of commercial property or business assets.

They can generate tax savings/relief on plant and machinery such as lifts and air-conditioning.

Allowances can be offset against taxable profit.

I always advise times to seek specialist advice

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29
Q

What would you have regard to when disposing of a freehold or new lease over seven years?

A

Land registration act, 2002

Must now be registered the Land registry, along with a LRCLP.

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30
Q

What would you expect to find on a land registry compliant lease plan?

A
  1. Drawn to metric scale – 1:100 or 2:200
  2. Northpoint
  3. Scale location plan – 1:1250
  4. Demise line in red – internal wall
  5. Address in full
  6. Scale measurement bar
  7. Scale noted on plan
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31
Q

How would you decide which of sale to use?

A

Choose the most appropriate method of sale I would consider:

  • The clients objectives
  • Public accountability of the client
  • Market conditions – current and future
  • Likely level of demand
  • Timing
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32
Q

Why would you recommend the private treaty method of sale?

A

It is flexible

There is no obligation for the Vendor to sell

It is confidential

No time constraint

No commitment to open market

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33
Q

What would you consider are the disadvantages of the private treaty method?

A

Potential for gazumping

Late decision by purchaser not to buy

Abortive costs

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34
Q

What are the advantages of the informal tender method of sale?

A

It is not binding prior to contract

It can be used to obtain a best offer

Vendor normally under no obligation to except highest or any offer

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35
Q

What are the disadvantages of an informal tender?

A

No guarantee of sale – not binding until contract

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36
Q

What are the advantages of a formal tender?

A

Speeds up the process to exchange contracts

Vendor can state under no obligation to sell

Comprehensive – Useful method for bodies with high level of public accountability.

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37
Q

Are there any disadvantages of a formal tender?

A

No opportunity for further bids

Might not be able to achieve as higher bid as with an informal tender.

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38
Q

What are the advantages of the auction method of sale?

A

It’s quick – short timetable for disposal

Certainty of sale

Useful for hard to value properties

Useful for properties which will generate high level of interest

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39
Q

What are the disadvantages of the auction method of sale?

A

Cost of promotion/advertising

Lack of confidentiality

Intense nature of short marketing period

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40
Q

What are CPSEs?

A

Commercial Property Standard Enquiries

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41
Q

Can you tell me what the different CPSEs are?

A

CPSE1 – general enquiries

Supplemental

CPSE2 – commercial tenancies

CPSE3 – grant of a lease

CPSE4 – assignment

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42
Q

Why must you receive signed terms of instruction before proceeding?

A

In accordance with s.18 of the estate agents act 1979.

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43
Q

What must you do prior to publishing marketing material?

A

Obtain written approval of the marketing material from the Vendor.

Under the consumer protection regulations, 2008 and the misrepresentations act, 1967.

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44
Q

Can you tell me some typical forms of purchase vehicles?

A

Joint ventures

REITS– Real estate investment trusts

SPV – special purchase vehicle

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45
Q

What are purchases costs?

A

These are the likely costs incurred when purchasing a property.

This includes stamp duty - 0/2/5%
Agents fees - 1%
Legal fees - 0.5%

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46
Q

What determines how much stamp duty one pays?

A

Up to £150,000 – nil

From £150,000-£250,000 – 2%

Over £250,000 – 5%

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47
Q

How is stamp duty charged?

A

On an incremental basis

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48
Q

What is a WAULT?

A

Weighted average unexpired lease term.

49
Q

How is the WAULT calculated?

A

It is calculated by multiplying the percentage waiting of rent by the term remaining on each lease.

50
Q

What is a party wall?

A

A wall which sits on the Boundry of land belonging to 2 or more owners.

Always recommend client seeks specialist advice.

51
Q

What are rights of light?

A

This is where the party enjoys on interrupted enjoyment of light.

It arises after 20 years of uninterrupted enjoyment without consent of an easement.

52
Q

What is the definition of freehold?

What is the definition of leasehold?

A

Absolute and permanent tenure.

Leasehold is a wasting asset

53
Q

What is an agency instruction agreement?

A

This sets out the basis of agency.

54
Q

What impact might a sale and lease back have on purchasers costs?

A

If the sale is not being treated as a transfer of going concern (TOGC), then the purchaser might have to pay VAT on the Stamp Duty.

55
Q

What is a triple net yield?

A

This is the yield of a property net of rental guarantees or top ups.

56
Q

What do you diligence do you undertake prior to selling a building?

A

Valuation due diligence

Marketing due diligence

Statutory due diligence

Building specific due diligence

57
Q

What is valuation due diligence?

A

This would include gathering comparable evidence of rental values and yields.

58
Q

What is marketing due diligence?

A

This would be with regards to working out who is going to buy the property.

59
Q

What is statutory due diligence?

A

This is with reference to legislation and would include:

Asbestos
EPC
Fire safety
Health and safety
Equality act
60
Q

What is building specific due diligence?

A

This would include:

  • Details on title and tenure
  • Leases
  • Licenses for alterations
  • Building survey
  • Environmental survey
61
Q

What are the major lease terms which affect value?

A

Lease length/time certain

Break clause

Alienation clause

Repairing obligations

User clause

Security of tenure provisions

62
Q

What is included in heads of terms?

A 
Property
Vendor details
Purchaser details
Solicitors details
Agents details
Price
VAT
Conditions
Deposit
Source of funding
Timescale
Legal Costs
Confidentiality 
Exclusivity
63
Q

When does the misrepresentation act apply?

A

During the pre-contractual enquiries stage.

64
Q

When does the estate agents act apply?

A

During the entire agency process.

65
Q

When does the consumer protection regulations apply?

A

Throughout the entire agency process.

66
Q

What companies cannot register for VAT?

A

Charities

Financial institutions

Medical practitioners

67
Q

Why would a landlord choose to elect property?

A

In order to be able to recover VAT on costs expended.

68
Q

What is an agency instruction agreement?

A

This is the terms of engagement when selling a property.

69
Q

What must an agency instruction agreement set out?

A 
Agency basis
Agency rights
Fee
Marketing costs/disbursements
Confirmation of no conflicts
Money laundering requirements
Timescale for payment of fees/disbursements
Details of complaints handling procedure
70
Q

What is the difference between freehold and leasehold?

A

Freehold is an interest in land into perpetuity.

Leasehold is an interest in land for a set period of time.

71
Q

What are the main methods of sale?

A

Private treaty

Formal tender

Informal tender

Auction

72
Q

What are the benefits of the private treaty method?

A

Parties control the process

Parties are free to negotiate in their own time

It provides flexibility

No obligation to sell

Confidential

73
Q

What are the disadvantages of the private treaty method?

A

No certainty of sale

Potential for gazumping/gazundering

No obligation to sell

74
Q

What are the advantages of an informal tender?

A

Allows for further negotiation

Can be used to obtain best offers

Vendor under no obligation to sell

75
Q

What are the disadvantages of informal tender?

A

Not legally binding – parties can pull out any time until completion

Does not lead to direct contract for sale

76
Q

What are the advantages of a formal tender method?

A

Can speed up the process to exchange of contracts

Possible to lead direct to contract for of sale

Vendor can reserve the right not to accept the highest bid

77
Q

What are the disadvantages of the formal tender method?

A

No opportunity for a further bid or negotiation

Lack of flexibility

78
Q

What are the advantages of an auction method of sale?

A

Certainty of sale

A good option for properties that are hard to accurately value

Quick process

79
Q

What are the disadvantages of the auction method of sale?

A

Cost of promotion

Lack of confidentiality

Intense short marketing period

80
Q

What are the differences between the formal and informal tender methods of sale?

A

Formal – only one chance to bid
Informal – further bids/negotiation possible

Formal – highest bid normally accepted
Informal – no obligation to accept highest/any offer

Formal – can lead to direct contract for sale
Informal – will not lead to direct contract for sale

Formal – detailed TandCs agreed in advance
Informal – less onerous TandCs agreed

81
Q

Give me 10 key factors that have an impact on value?

A 
Location
Investor demand
Supply
Lease terms
Covenant information
Market conditions
Condition of the property
Planning status
Local transport and infrastructure
Size and use
82
Q

Give me six factors that have an impact on value?

A

Location

Investor demand and supply

Market conditions

Lease terms

Covenant information

Condition of the property

83
Q

(Follow-up question to factors impacting on value)

How might key factors be assessed differently?

A

Depending on the clients objectives, key factors impacting on value may be assessed differently.

For example an investor seeking a property with potential for vacant possession will be less interested in lease terms and covenant information.

84
Q

Having placed the property under offer how would you assist the solicitors through to completion?

A

Having placed a property under offer I would make sure to maintain regular contact with my client and their solicitor in order to ensure that the legals progress in a timely manner in order to keep within the agreed timescales. I would also ensure that everything agreed to in the heads of terms is being adhered to.

I would also help where possible with any enquiries that the solicitor or my client may have.

85
Q

What do you include in your terms of engagement when you take on an instruction?

A

Basis of agency and Agency rights

Fees plus any costs and disbursements including timescales for payment

Confirmation of no conflicts of interest

Money laundering regulations requirements

Provide details of complaints handling procedure

Normally include a ‘ready able and willing purchaser’ clause.

Information on PII

86
Q

What did you have regard to when inspecting Tooks Court? (Or any property)

A

When inspecting the property I would first have regard to the immediate area, for example its location, local amenities and public transport.

I would then undertake the external inspection of the property, considering such things as the condition of the property, access arrangements, and confirming the site boundaries.

Finally I would undertake the internal inspection, taking note of things such as the specification, the state of repair and any defects, as well as the layout and flexibility of the space.

87
Q

What is included in the heads of terms for a sale/purchase of a property?

A 
Property address
Date
Subject to contract
The parties
The price to be paid
Costs
Timescales
VAT position
Any conditions of sale
Details of solicitors
Details of agents
88
Q

When analysing your comparable occupational data, how did you decide which was the most relevant?

A

When analysing my comparable data I would have regard to the hierarchy of evidence.

That is to say that I would order the comparable information with regard to its relevance as a comparable.

The typical order would be:

– new leases
– Lease renewals
– rent reviews
– third-party determinations
– sale and leasebacks
89
Q

What are sole Agency rights?

A

Sole agency rights:

Fee is only due if the agent introduces the purchaser within the term of instruction agreed.

90
Q

Where must personal interests be shown as a minimum?

A

Within the marketing particulars and in heads of terms.

91
Q

When you receive an offer, how must this be dealt with?

A

When receiving an offer I always make sure to report it to my client promptly and in writing.

92
Q

Who polices the estate agents act 1979?

A

The Trading Standards Office

(local authority

93
Q

Can you tell me about Consumer Protection Regulations 2008?

A

The Consumer Protection Regulations updated the Property Misdescriptions Act.

They impose much broader requirements for consumer protection and extend the duty of care to potential clients, viewers and buyers.

They aim to prohibit unfair business and ensure no misdescriptions.

94
Q

Who polices the Consumer Protection Regulations?

A

The Trading Standards Office.

Local Authority

95
Q

What are the penalties for a breach of the Consumer Protection Regulations?

A

Prohibition order

Unlimited fine

Prison (up to 2 years)

Compensation to complainant (up to £25,000)

96
Q

What are the key points of the Consumer Protection Regulations?

A

1) Applies to all lettings and sales
2) Agents duty of care to clients and interested parties
3) Agent must declare all knowledge of property
4) Agent must not exert undue pressure
5) New information discovered must be passed on.
6) Omissions equals breach
7) Full due diligence required

97
Q

What most property particulars include?

A

A disclaimer clause

An EPC rating

98
Q

Tell me about the Misrepresentation Act 1967?

A

The Misrepresentation Act relates to false statements made during pre-contractual enquiries which leads to purchase. It is a form of negligence and a civil offence only. It can lead to an agent being sued for damages or having their contract rescinded.

99
Q

What is an agents duty of care under the Misrepresentation Act 1967?

A

To check that advice and information provided is reliable.

100
Q

How can an agent/vendor be protected against misrepresentation?

A

With an affective disclaimer clause.

101
Q

What is the leading caselaw on misrepresentation?

A

Hedley Byrne VS Heller

This refers to liability under negligent statements and created the tests of reasonableness?

102
Q

How would you establish if someone was negligent for miss representation?

A

I would have regard to the case law set out in Hedley Byrne VS Heller, which sets out the tests of reasonableness.

3 Tests

  • Foreseeability
  • Proximity
  • Fairness
103
Q

What does caveat emptor mean?

A

Let the buyer beware.

States the buyer should satisfy itself on all matters relating to the property.

104
Q

Is there any legislation which governs the use of marking signage?

A

The Town and Country Planning Regulations

105
Q

Do you need planning consent for a letting board?

A

If larger than 2 m (when flat)

If larger than 2.3 m (V board)

If illuminated

If on a listed building or in a conservation area

106
Q

Is there a height restriction for letting boards?

A

Letting boards must not be above 4.6 m from ground level.

107
Q

How far can a letting board project from a building?

A

A maximum of 1 m

108
Q

When must a letting board be removed?

A

14 days after the transaction.

109
Q

Who polices the use of letting boards?

A

Local Planning Authority

110
Q

What are the penalties if a board is in breach of planning restrictions?

A

LPA can:

Remove the board

Issue a fine

111
Q

Why would you advise a client to opt their property for tax?

A

To enable them to recover VAT on costs expended.

i.e. refurbishment

112
Q

What are AML checks and when would you implement them?

A

AML stands for Anti Money Laundering.

I undertake these checks whenever I take on a new instruction.

113
Q

Are you aware of any legislation relating to money laundering?

A

Money laundering, terrorist financing and transfer of funds regulations cover 2017.

This replaced the previous regulations and came into effect in June 2017.

114
Q
  1. Did you write a purchase report?

2. If you had written a purchase report would this have to be read book?

A
  1. No I didn’t.

2. Yes it would.

115
Q

What is in the contents of heads of terms?

A 
Purchaser
Purchase price (Consideration)
Property
Tenure
Tenancy
VAT
Funding
Conditions
Timetable
Deposit
Solicitors details
116
Q

You mention that the leaseback would only be for five years, how did you reflect this in your valuation?

A

To value the leaseback, I simply valued the income stream for the term of the leaseback discounting it back at an appropriate rate.

117
Q

What is a TR1 form?

A

I believe this is the form that is used to transfer the registers title of a property from one party to another.

118
Q

Give me an example of some conditions of sale?

A

Subject to:

Contract
Satisfactory due diligence
Survey
Vacant possession

RICS SL (20 decks)

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