Purchase and Sale Flashcards
What is the Estate Agents Act (1979)?
Regulates all agency work for land and freehold and leasehold sales.
What are the 7 key principles of the Estate Agents Act (1979)?
Clarity on the terms of Agency (S.18)
Honest and Accuracy
Openness regarding personal interests (S. 21)
Absence of discrimination
Legal obligation to tell the client offers
Keep client’s money separate
Agreement of liability for costs
Clients have a 14 day cooling off period upon instruction of an agent.
Who policies the Estate Agents Act?
National Trading Standards Estate & Letting Agency Team
What are the penalties for breach of the Estate Agents Act (1979)?
- Prohibition Order
- Warning Order
What is a connected person under the Estate Agents Act (1979)?
Someone who could benefit financially from the transaction, such as a family member or a business associate.
Are there any updates to the Estate Agents Act (1979)?
Estate Agents (Undesirable Practices) Order (1991) - Estate agents must inform their clients at the same time they are informed of Terms of Business, as to any additional services to be offered to prospective purchasers, unless they are free.
Estate Agents (Provision of Information) Regulations (1991) - This information must be provided in writing as to the services provided and the remuneration.
What are the key principles of the Consumer Protection from Unfair Trading Regulations (2008)?
- offers broader, non-specific consumer Protection for estate agents agents.
- relates to potential buyers and vendors
- Extends the duty of care owed to potential clients, viewers, buyers and actual buyers (all consumers)
- Need to give accurate and/or necessary ‘material’ information and not make any mis-descriptions.
- Agents must declare everything known about the property
- Agents can’t put undue pressure on potential buyers.
Who policies the Consumer Protection Regulations?
Trading Standards Office of a Local Authority
What are the penalties for breaching the Consumer Protection from Unfair Trading Regulations (2008)?
Criminal Offence:
Maximum fine
Prohibition Order
2 years in prison.
Key principles of the Business Protection from the Misleading Marketing Regulations (2008)?
BPRs offer businesses protection from business-business transactions.
Mirrors CPRs.
Prohibits misleading business-business activity.
Imposes restrictions on how businesses compare their products to products of another company.
What is the RICS guidance on estate agency?
RICS Global Real Estate Agency and Brokerage Professional Statement (2016).
RICS UK Commercial Estate Agency Professional Statement (2016).
RICS UK Residential Real Estate Agency Professional Statement (2017) (The Blue Book).
Key principles of the RICS Global Real Estate Agency and Brokerage Professional Statement (2016)?
Professional Statement
All RICS members involved in the sale, letting and leasing of real estate must follow.
Includes:
- Ethics
- Securing instructions
- Acting for the seller
- Acting for the buyer
It is similar to the UK specific professional statement - RICS UK Commercial Estate Agency (2016).
What are the key principles of the RICS UK Commercial Estate Agency Professional Statement (2016)?
Mandatory Professional Statement for RICS members.
Provides mandatory standards for those involved in agency work.
Has 12 core principles:
- Act in an honest, fair and transparent manner
- Ensure client’s are provided with Terms of Business
- Do upmost to avoid conflicts
- Have adequate PII
- Do not discriminate unfairly any dealings
Also advices on key agency matters i.e. acting ethically, securing instructions, marketing, gifts etc.
What are the key principles of the RICS UK Residential Real Estate Agency Professional Statement (2017) (The Blue Book)?
Provides a mandatory summary of the code of practice in all aspects of property marketing for residential.
Comprises the following material:
- Relevant estate agency legislation
- Standards & ethics
- Proper marketing
- Acting for the vendor, purchaser and landlord.
What are the key principles of the Misrepresentations Act (1967)?
Relates to the misrepresentation or a fake statement made by a party during pre-contractual enquiries, which has an effect of inducing the party to purchase.
Agent has a duty of care to check the advice and information given.
What are the penalties of the Misrepresentations Act (1967)?
It is a civil offence - a form of negligence.
Three tests to decide whether an agent is liable for negligence:
Foreseeability - damage is foreseeable
Proximity - relationship is sufficiently proximate by law
Fairness - fair and reasonable for a duty of care to arise
Can be sued for financial damages and/or contract recinded.
What are the main differences between CPR (2008) and Misrepresentation Act (1967)?
CPRs are a criminal offence.
Misrepresentation is a civil offence.
Misrepresentation Act relates to misrepresentation during the pre-contractual enquiries by the vendor and their agent to potential purchasers.
CPRs relate during the entire agency sales & lettings process.
What is the Regulation of Property Agents?
A working group has made recommendations for the government on a new regulatory framework for property agents.
Published in 2019.
Proposes that all agents be regulated by an independent regulator with mandatory qualifications for agents and code of practice.
All qualifying agencies are to be licensed and abide by the new code of practice.
Transparency of costs and charges now priorities.
No date has been announced for the proposed legislation.
When is planning permission needed for marketing signage?
- If it’s above the allowed sizing
- Illuminated boards
- Remote boards
- Boards on listed buildings & in conservation areas
What governs marketing signage?
The Town and Country Planning (Control of Advertisement) Regulations 2007
Only 1 board allowed for commercial properties.
Must remove signs 14 days after completion.
What signage does not need planning permission?
Non-residential boards under:
2sqm (flat)
2.3sqm (v-board)
Residential boards under:
- 5sqm (flat)
- 6sqm (v-board)
When is VAT Applicable?
A landlord/vendor can choose to opt a property for tax, in order to recover VAT on costs spent.
However. this then creates issues for tenants, who now have to pay VAT on rent and service charge.
Always advise to see a specialist.
Some occupiers can’t register for VAT i.e. charities
What is Savills PII for agency / consultancy?
£5 million for 6 years after the appointment.
What do AML Checks consist of?
Public Limited Company:
- London Stock Exchange Listing
Publicly Accountable Body:
- Government ownership / control
Private individual:
- passport/driving license
- proof of address i.e. utility bill from last three months
PLC:
- certificate of incorporation
- full name
- registered number
- registered office
- business address
- name of stakeholders with 25% + holding
- report any discrepancies to Companies House
What regulations govern AML Checks?
Money Laundering, Terrorist Financing and Transfer of Funds and Regulations (2019)
RICS Professional Statement Countering Bribery, Corruption, Money Laundering & Terrorist Financing (2019).
Who is Savills Money Laundering Officer?
Christine Cox
What are the 4 methods of sale?
Private Treaty
Informal Tender
Formal Tender
Auction
How do you choose which method to use?
- Client objectives
- Desired timescale
- Public accountability
- Current and likely future market conditions
- Anticipated level of demand
- Likely target market
What is a sale by private treaty?
Parties are free to negotiate on their own time, without commitment in the open market.
It is the most popular method.
What are the pros and cons of private treaty?
Pros:
- flexible
- parties control the process
- no obligation to sell
- confidential
Cons:
- potential for gazumping/gazundering
- late decisions not to buy
- associated abortive costs
What is informal tender?
‘Best offers/bids’
Used when there is a good level of interest. It used either at the start or to bring negotiations to a close.
Agents will invite parties to submit a bid or a ‘best and final’ bid and will ask for details to include:
- applicants solicitor
- finance arrangements
- any conditions attached to the offer
What are the pros and cons of informal tender?
Pros:
- flexible
- possibility of negotiating a higher bid
Cons:
- can be difficult to manage bids
What is formal tender?
It is often used by a statutory body / when there may be public interest in the property.
Applicants bid blindly with a prescribed form, without knowing other bids.
All bids are to be opened in front of client/independent witness/line manager.
No opportunity for prospective purchaser to increase the bid after submission of offer.
What are the pros and cons of formal tender?
Pros:
- completely transparent
Cons:
- no flexibility
What are the differences between formal and informal tender?
Informal tender: further negotiations can follow, can change bid.
Formal tender: single bid only
Informal tender: will not lead to direct to a contract for sale
Formal tender: can lead to a contract for sale
What is an auction?
If a quick sale is wanted.
What are the pros and cons of an auction?
Pros:
- quick sale
- certainty of sale (assuming reserved price is achieved and its sold)
- good method for unusual properties that are hard to value
- used when good interest is expected
Cons:
- cost of promotion and publicity
- no confidentiality on price achieved
- vendor cannot choose purchaser
- intensive nature of a short marketing process
When are AML checks conducted at an auction?
AML Checks must be completed prior to the auction for vendors and potential purchasers.
When does property at an auction sell?
At the fall of the gavel.
What would you do if you got a late bid?
Under the Estate Agents Act (1979), I must disclose all offers received to the client.
It is the client’s choice on how they handle it and would like to proceed.
What are the three bases of agency?
- Sole agency
- Joint agency (share fee on a pre-agreed basis)
- Multiple agency (successful agent gets the fee)
What are sole selling rights?
The estate agent is entitled to the fee if there is any disposal of the property while the agreement is in force, regardless of who found the buyer or had negotiations with them.
This is the typical clause.
What are sole agency rights?
The estate agent is only due a fee if they introduce a purchaser within the instruction term.
Less advantageous for the agent as if client finds the purchaser, they will not get a fee.
What happens if a buyer fails to complete?
Vendor can serve a notice to complete - giving the buyer a deadline. The legal cost is to be paid by the buyer.
If this deadline is passed, the vendor can rescind the contract and remarket.
The vendor may be able to sue for damages for any loss in value following the sale to another party at a lower price.
What are agency instruction agreements?
They are a requirement of the RICS Rules of Conduct (2007) and the Estate Agents Act (1979) (sections 18 & 21)
There is a statutory cooling off period of 14 days.
The agreement must be signed and returned to the agent before marketing can commence.
What must agency instruction agreements include?
- Agency basis (sole / joint)
- Agency rights (sole selling / sole agency)
- Proposed fee
- Marketing costs & disbursements
- Confirmation of no COIs
- Money Laundering regulations requirements
- Timescale for the payment of fees and disbursements
- Details of CHP
What is Gazundering?
Where a buyer lowers their offer at the last minute, just before contracts are exchanged.
The seller, conscious of refusing the new lower price means they are back at square one and the chain may fall apart, often feel forced to accept the new lower offer.
What is gazumping?
Gazumping occurs when a buyer has had an offer to purchase a property accepted, but before the sale is completed the seller accepts a better offer from another buyer.
What are heads of terms?
They provide an executive summary of the purchase.
They provide a framework for contract, purchase timescales and any pre-exchange conditions.
They are not legally binding.
What goes into Heads of Terms?
- Vendor’s agent
- Vendor’s solicitor
- Purchaser
- Purchaser’s solicitors
- Purchase price
- The property
- The deposit
- Timing
- Purchaser’s obligations
- Rights
- Costs
What is the role of an agent after Heads of Terms?
They ensure timescales are adhered to.
Liaising with both parties and the solicitors to ensure everything is going smoothly and going to time.
What do you do with Heads of Terms once they have been signed off?
You exchange them with the two parties and you send to their solicitors.
What agreements and contracts are available for the purchase of land?
- Option Agreement
- Promotion Agreement
- Joint Venture
- Unconditional Contract
- Conditional Contract
- Development Agreement
What is an option agreement?
It gives the buyer the right to band the land if they give notice to the landowner within the option period, usually in return for an option fee.
They allow the buyer to explore planning potential without the obligation to buy if they are unable to obtain satisfactory permission.
The price paid may be fixed or may be based on a formula subject to market value determined by a surveyor.
What is an unconditional contract?
It is the simplest form of contract as the buyer agrees to buy it as it is.
It is often unsuitable for a development site, unless planning permission has already been obtained.
On exchange the buyer agrees to complete on the purchaser of the land on the completion date specified in the contract.
This arrangement provides certainty for both parties.
What is a conditional contract?
This allows the buyer to agree to buy the property, subject to certain conditions being satisfied i.e. STP.
Once conditions are satisfied within the timescales specified in the contract, the contract becomes unconditional and the buyer must complete by the set date in the contract.
What is a promotion agreement?
This enables a promoter to apply for planning permission for the development of the landlord’s property.
It provides for the property to be sold on the open market once permission has been obtained.
Profits are shared between parties.
What is a joint venture agreement?
A development agreement is a form of JV. However, can take many forms.
A special purchase vehicle will be incorporated for the purposes of owning and/or carrying out the development which may be owned and controlled by either 2+ companies or individuals who wish to pool resources & limit personal liability for a project.
What is a development agreement?
it is a collaboration between a landlord and developer.
The landowner supplies the land and the developer seeks planning and to build out the development.
Developer contributes to initial planning and build costs.
They then split profits between parties.
It is a form of JV.
What is overage?
It is a clause within a contract relating to the uplift in GDV or floorspace of a site STP, within an agreed timeframe,
A pre-arranged % of price is paid back to the vendor.
What are the forms of purchase vehicles?
Special purchase vehicle companies
- a company formed to buy a property to reduce the payment of SDLT
REITs
- a company tax resident in the UK which is listed on the stock exchange and has at least 75% of business in property investment.
JVs between 2+ parties.
What is SDLT?
It is a tax that is applied to the purchase of all property.
There are different residential and commercial bands.
Varying eligibility criteria depending on if you’re i.e. a first time buyer or a 2nd home buyer.
What are the residential SDLT rates?
£0 - £125k = 0%
£125 - £250k = 2%
£250 - £925k = 5%
£925k - £1.5m = 10%
£1.5m + = 12%
What are the commercial SDLT rates?
£0 - £150k = 0%
£150 - £250k = 2%
£250k + = 5%
What are the recent changes to SDLT?
1st July 2020 - buyers didn’t have to pay on first £500k
1st July 2021 - this reduced to £250k
1st October 2021 - this reduced to pre-covid levels to £125k.
Suggested timeline of a sales instruction?
- Receive instructions from client
- Check competence and conduct COIs
- Issue agency instruction agreement
- Receive signed agreement back (S. 18 EAA 1979)
- Money laundering checks
- Gather information & undertake due diligence
- Check VT position
- Inspect property
- Prepare marketing report & recommendations
- Get marketing materials signed off
- Undertake marketing
- Negotiate
- Draft HoT
- Liase with lawyers during legal process
- Invoice
What’s included in particulars to avoid issues with Misrepresentation Act?
A disclaimer stating:
“They assume no responsibility for any statement that may be made in these particulars. These particulars do not form part of any offer or contract and must not be relied upon as statements or representations.”
How do you seek proof of funds?
A written statement from the purchaser’s solicitor.
What is the different with an option and a STP deal?
Option - you have the right to walk away.
STP - you will seek planning then you buy for the pre-agreed price.
Option - you don’t know what will be planned.
STP - you know the planning and what will be put on it.
When would you advise option over STP?
Depends on the timing - how far away that planning is achieveable.
What is the difference between option and promotion agreements?
Promoter:
- will sell to the open market
- interests to see highest value are aligned
- might not maximise density
- no end negotiation
- not sure if anyone will want to buy it at the end
Option:
- developer will ultimately argue lower land value to pay less - likely to chip
- likely to end up with a more valuable scheme as they will know their house types and will maximise density
- developers will know technical details better
- developer more likely to get planning due to deliverability
What are the timescales for selling land at the moment?
Immediate sales = 3 - 6 months
Legals are currently taking a long time.
Usually 2 - 3 months.
When would you advise option or promotion?
Option:
- if they want to be removed from the process
- less hassle for them
Promotion:
- more if they want a legacy
- have a more active role in shaping the development
