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RICS APC > Purchase and Sale > Flashcards

Purchase and Sale Flashcards

1
Q

What are the 4 methods of sale?

A
  1. Private treaty.
  2. Informal tender.
  3. Formal tender.
  4. Auction.
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2
Q

What is private treaty?

A

Parties are free to negotiate in their own time and without commitment in the open market.

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3
Q

What is informal tender?

A
  • Best bids process.
  • Agent invites all parties in writing to submit their best and final bid in accordance with the prescribed timescale.
  • Not legally binding until the contract is exchanged.
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4
Q

What is formal tender?

A
  • 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 bid once submitted.
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5
Q

What is auction?

A
  • Method of sale for unusual property.
  • Sold in an auction room on a prescribed date/ time.
  • Contracts exchanged as soon as gavel hits the table.
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6
Q

Important line when dealing with formal or informal tender?

A

Vendor is under no obligation to accept the highest, best or any bid.

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7
Q

Advantages and disadvantages of private treaty?

A

+ Flexibility/parties control process
+ Vendor is not obliged to sell
+ Confidential.

  • Potential for gazumping/late decision is not to buy.
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8
Q

Advantages and disadvantages of informal tender?

A

+ Not legally binding
+ Ability to negotiate further + Good negotiating mechanism to invite interested parties
+ Confidential.

  • Longer to exchange
  • Purchaser may drop out.
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9
Q

Advantages and disadvantages of formal tender?

A

+ Leads to direct contract for sale/quick exchange/confidential/ high level of public accountability.

  • No opportunity to bid further/legally binding.
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10
Q

Advantages and disadvantages of auction?

A

+ Short timescale to sell/good for unusual property/ good when unsure on value.

  • Expensive to market/lack of confidentiality/can’t choose purchaser.
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11
Q

What are the 3 types of agency?

A
  1. Sole agent
  2. Joint agent – to a more joint agent sharing fee
  3. Multiple agency – several agents but only the successful agent gets a fee
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12
Q

What are sole selling rights?

A

Agent gets fee even if don’t introduce buyer to client.

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13
Q

What is the timeline of sales instruction?

A
  • 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
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14
Q

What is CPSE?

A

Commercial property standard enquiries

Pre-contractual enquiries e.g. environmental title statutory SDLT

Undertaken by vendor’s solicitors

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15
Q

Items included in a marketing strategy?

A

1) Introduction (Location & Situation)
2) Site/ Property Description
3) Market Commentary
4) Comparable Evidence & Preliminary Conclusions
5) Marketing Strategy (inc timetable and costs)

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16
Q

What is TOGC?

A

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.

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17
Q

What is capital gains tax?

A

Tax and profit when you sell something that has increased in value.

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18
Q

What are capital allowances?

A

Tax relief on capital expenditure for construction or purchase of commercial property or business assets (e.g plant and machinery).

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19
Q

What is privity of contract?

A

Contract only between parties included within it i.e. exclude any third parties benefiting from the contract.

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20
Q

What is an off market transaction?

A

Buyer approach vendor to buy without going to market.

Very confidential.

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21
Q

Advantages and disadvantages of an off market transaction?

A

+ 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.
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22
Q

Items included in Heads of Terms?

A

Subject to contract

Vendor details
Purchaser details
Property address
Description
Tenure/ Tenancy
Purchase price
Funding
Deposit
VAT
Timescales
AML checks
Conditions

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23
Q

VAT

A

20%

Usually, sale of property is exempt from VAT.

Can be applied to new property if less than 3 years old or where landlord is elected for VAT to be charged.

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24
Q

What is an unconditional offer?

A

Not subject to any conditions.

Buy as it is.

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25
Q

What is a conditional offer?

A

Subject to planning/ ground investigations etc.

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26
Q

RICS guidance in this area?

A

RICS UK Commercial Estate Agency Professional Statement 2016 - Mandatory

27
Q

Purpose of RICS UK Commercial Estate Agency Professional Statement 2016?

A

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.

28
Q

What are the core principles of RICS UK Commercial Estate Agency Professional Statement 2016?

A

There are 12 in total.

E.g.

  • Act in a fair, honest and transparent manner.
  • Ensure that clients are provided with terms of business.
  • Avoid conflicts.
  • Truthful and honest marketing.
  • Hold appropriate PII cover.
29
Q

Main piece of legislation in this area?

A

Estate Agents Act 1979

30
Q

What is the purpose of Estate Agents Act 1979?

A

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 capital value.

31
Q

What are the main principles of Estate Agents Act 1979?

A

Section 18 - Undertake terms of business.

Section 21 - Disclosure of a personal interest.

Legal obligation to tell client about ALL offers received.

32
Q

What are the regulations in this area?

A

Consumer Protection from Unfair Trading Regulations 2008

33
Q

What is the purpose of Consumer Protection from Unfair Trading Regulations 2008?

A

Relates to potential buyers and vendors.

Extend duty owed to not just clients but to 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.

34
Q

When is the Consumer Protection from Unfair Trading Regulations 2008 applicable?

A

Lettings and sales

35
Q

Unfair practices under Consumer Protection from Unfair Trading Regulations 2008?

A
  1. Giving false or misleading information.
  2. Hiding or failing to provide information.
  3. Exerting undue pressure on consumers.
  4. Failing to show professional diligence.
36
Q

Civil Agency Legislation?

A

Misrepresentation Act 1967

37
Q

Purpose of Misrepresentation Act 1967?

A

Prevent misrepresentation or false statement of fact being made.

Agency has a duty of care to ensure all information is correct.

Exclusion/disclaimer clauses at bottom of marketing - protects agents and must include date.

38
Q

Size on non-residential board that needs planning consent

A

Flat board – 2 m²

V board – 2.3 m²

39
Q

Maximum size of residential board

A

Flat board – 0.5 m²

V board – 0.6 m²

40
Q

Cost of non-residential board

A

£125-£135 plus VAT

41
Q

When must a board be removed?

A

14 days after completion of transaction

42
Q

What is a cooling off period?

A

14 day period allowed for clients who change their mind and don’t want to instruct agents following signing terms in accordance with Consumer Protection from Unfair Trading Regulations 2008.

43
Q

What factors would you consider when choosing which method of sale to use?

A
  • client’s objectives
  • public accountability
  • current and likely future market conditions
  • likely level of demand for the property - likely target market
  • timing requirements
44
Q

Details included in letter inviting ‘best and final’ bids

A
  • required date and time of receipt of the written offer
  • name and address of the applicant’s solicitor
  • confirmation of finance arrangements
  • details of any conditions attached to the offer
  • confirmation that offers of a variable nature (e.g. an escalator bid, offering an amount more than highest offer received) will not be considered
  • IMPORTANT - the vendor reserves the right not to accept the highest, or any, offer made.
45
Q

Information required for AML check

A

1) Corporate structure and ownership details

2) Identification and verification of ultimate beneficial owners

3) Satisfactory proof of the source of funds for the Buyers/ funders/ lessee.

46
Q

Examples of agent considerations when marketing property

A
  • legislation (e.g. Data Protection Act 2018, GDPR etc)
  • existing lease arrangements
  • measurement (in accordance with RICS guidance)
  • marketing appraisal (not a formal valuation but needs to be realistic and justifiable)
  • EPC (must be supplied and provided within 7 days of commencement of marketing)
  • marketing the property (only with client’s permission and ensure that client has the legal right to dispose)
  • marketing strategy (agree with client and regularly review it with them)
47
Q

Examples of factors affecting value of property

A
  • tenure
  • location
  • size
  • condition
  • unexpired term
  • covenant strength
  • planning use class
  • external market conditions
48
Q

AY’s usual marketing channels

A
  • Northwest agents
  • Rightmove
  • PROPEX
  • AY website
49
Q

Information required for an AML check

A
  1. Corporate structure and ownership details
  2. Identification and verification of ultimate beneficial owners
  3. Satisfactory proof of funds for the Buyers/ funders/ lessee in case of a purchase
50
Q

What is meant by a ‘connected person’ under Section 21 of the Estate Agents Act 1979?

A

Someone who could benefit financially from the transaction such as a relation or business associate.

51
Q

The Estate Agents Act 1979 is policed by…

A

National Trading Standards Estate & Letting Agency Team (NTSEAT)

52
Q

Penalties for breaching Estate Agents Act issued by NTSEAT?

A
  • Negative licensing
  • Prohibition Order
  • Warning Order (written warning)
53
Q

When would you advise your client to use auction as a method of disposal?

A

1) If the property is need of refurbishment or development works stalled (vendor doesn’t want to pursue works);

2) In need of fast transaction (exchange at the hammer fall - completion generally 28 days after);

3) High demand for the asset;

4) May create competitive bidding tension (sometimes better result than what would be if using Private Treaty).

54
Q

What are the fees associated with auctions?

A

Sales fee generally 2.5% or in the region, higher than general agency fees.

55
Q

What is the difference between Misrepresentation Act 1967 and CPR 2008?

A
  • Consumer Protection Regulation is a criminal offence, there are no disclaimers that can be used in relation to the offence.
  • Misrepresentation Act is a civil offence, actionable as tort (not criminal) and is a form of negligence, disclaimers can be used to protect the vendor and agent if fair and reasonable.
56
Q

What is included in an exclusion/ disclaimer clause?

A

1) The particulars are set out as a general outline only and do not constitute an offer or contract, or part of an offer or contract.

2) All descriptions, dimensions and references to the property’s condition and any necessary permission for use and occupation are given in good faith and believed to be correct. Should not be relied on as statements or representations of fact.

3) No authority to make or give any representation or warranty in relation to the property.

4) Prices exclusive of VAT.

5) No liability in relation to any documents prepared solely by third parties.

6) AML regulations

57
Q

Relevant case law regarding Misrepresentation Act?

A

Hedley Byrne & Co Ltd v Heller & Partners

58
Q

Hedley Byrne & Co Ltd v Heller & Partners

A

Established THREE tests to decide agent’s liability for negligent statements:

1) Foreseeability
2) Proximity
3) Fairness

59
Q

Items to include when informing client of offer received?

A
  • time and date of the offer
  • the amount of the offer
  • any conditions attached
  • source and availability of funds (if finance - what stage this is at)
  • any services offered by you to the buyer
  • any factors that may influence the purchase (e.g. timescales)
60
Q

Under Land Registration Act 2002, what must be included on a Title Plan for freehold transactions?

A
  1. Drawn to a metric scale (normally 1:100 or 1:200)
  2. Have a scale measurement bar
  3. Have a scale noted on the plan
  4. Full address including post code
  5. A north point
  6. Demise outlined in red on the inside edge of the property
61
Q

Meaning of a ‘ready able and willing purchasers’ clause under Estate Agents Act 1979?

A

Often included so that when an applicant is ready and able to proceed with a purchase, but the client then decides to withdraw, an abortive fee may be charged by the agent

62
Q

What is a ‘Notice to Complete’?

A
  1. The vendor can serve this notice on the proposed purchaser giving them a deadline to complete.
  2. The legal costs for this work are to be paid by the proposed purchaser.
  3. If this deadline is passed, the vendor can rescind the contract and remarket the property. Any deposit can be retained by the vendor.
  4. The vendor may be able to sue for damages to claim for any loss in value following the sale of the property to another party at a lower sale price.
63
Q

What are ‘sole agency rights’?

A

Fee is only due if the agent introduced purchaser within term of instruction agreement.
If client finds the purchaser, then no fee will be due.
(Less advantageous position then sole selling rights)

64
Q

What are the 4 forms of purchase vehicles?

A
  1. Special Purchase Vehicle (SPV)
  2. Offshore units trusts such as JPUTs (Jersey Property Unit Trusts)
  3. Real Estate Investment Trusts (REITs)
  4. Joint ventures between two parties

RICS APC (18 decks)

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