Purchase and Sale

Question 1

What are the FOUR main methods of sale?

Answer 1

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

Question 2

What factors should you consider when recommending what method of sale to use?

Answer 2

• Client’s objectives i.e. do they have to sell
• Public accountability
• Current and likely future market conditions
• Likely level of demand for the property - likely target market
• Timing requirements

Question 3

What is the private treaty method of sale?

Answer 3

Parties are free to negotiate in their own time and without commitment in the open market. It is a private matter

Question 4

What are the advantages of the Private treaty method of sale?

Answer 4

• Flexibility
• The parties control the process
• Vendor not under any obligation to sell
• Confidential

Question 5

What are the disadvantages of the Private treaty method of sale?

Answer 5

• The potential for gazumping (seller goes with a higher offer at the last minute) or more likely gazundering (buyer reduces their offer at the last minute)
• Late decisions not to buy
• Associated abortive costs
• Lack of competitive tension among purchasers

Question 6

When would you recommend the use of Informal tender (best offers or bids)?

Answer 6

When there is a good level of interest in the property, either at the commencement of a marketing campaign or to bring negotiations to a conclusion

Question 7

What is the process for Informal tender (best offers or bids)?

Answer 7

• The agent invites in writing all interested parties to submit their ‘best and final’ offer in accordance with a prescribed timescale
• All bids should be opened in front of the client or an independent witness / line manager
• ‘Best bids’ procedure is not legally binding so either party can withdraw at any point up to contract

Question 8

What should be included in a letter to interested parties asking them to submit their ‘best and final’ offer as part of an Informal tender sales process?

Answer 8

• Statement saying ‘the vendor is under no obligation to accept the highest, best or any bid’
• 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 (i.e. an escalator bid, offering an amount more than the highest offer received) will not be considered

Question 9

When would you recommend the use of Formal tender (sealed bids)?

Answer 9

• Used when there is a high level of interest in the property
• Used by a statutory body to give control over the marketing process
• Provides a high level of public accountability

Question 10

What is the process for Formal tender (sealed bids)?

Answer 10

• Marketing materials must include a comprehensive legal pack, provided in advance of the tender process
• Clear letter sent out to all prospective purchasers setting out the written information required to accompany the written offer
• Vendor can state they are under no obligation to accept the highest bid
• Applicants bid blindly in a prescribed form without knowing what other parties are bidding
• All bids should be opened in front of the client or an independent witness / line manager
• No opportunity for the prospective purchaser to change or increase their bid after the submission of their offer
• Can lead to an immediate exchange of contracts, depending on the terms and conditions of sales states in the marketing particulars

Question 11

What are the differences between a Formal tender and an Informal tender?

Answer 11

•Formal tender only gives purchasers one opportunity to bid whereas under informal tender purchasers can amend offers

• Formal tender can lead to a direct contract for sale whereas informal tender will not

• Formal tender provides a high level of accountability whereas informal tender does not

Question 12

What are the advantages of the Auctioneering method of sale?

Answer 12

• Achieving a relatively short timetable for the disposal of the property
• Certainty of sale, assuming a reserve figure is achieved
• Useful for unusual property which is hard to accurately value
• Used for a property which is likely to generate a strong level of interest

Question 13

What are the disadvantages of the Auctioneering method of sale?

Answer 13

• Cost of promotion and publicity
• Lack of confidentiality over the price achieved
• Vendor cannot choose the purchaser
• Intensive nature of a short marketing period

Question 14

What is the process for Auctioneering?

Answer 14

• Conflict of interest checks undertaken prior to accepting the instruction
• Terms of Engagement must be agreed in writing in advance
• Money laundering checks must be completed for all vendors and proposed purchasers in advance
• Full due diligence undertaken prior to offering the property for sale
• General Conditions of Sale, Memorandum of Sale and any notices to bidders are published by the Auctioneer
• Reserve price (below which the property will not be sold) needs to be agreed with the vendor
• Clarity required regarding the Auctioneer’s rights to refuse bids, to regulate the bidding increments, to accept proxy, telephone, internet and postal bids and to sign the contract on behalf of the vendor
• Contracts exchanged at the fall of the gavel

Question 15

What actions are required by a purchaser ahead of Auction day?

Answer 15

• View the property and consider a structural survey
• Take the proper legal advice and complete a due diligence exercise
• Read the Notice to Prospective Buyers
• Arrange a deposit of 10% and insurance for exchange
• Provide ID for money laundering procedures

Question 16

Once Heads of Terms have been agreed, what do the solicitors draft?

Answer 16

Sale and Purchase Agreement (SPA)

Question 17

What should you include within your Terms of Engagement when conducting agency instructions?

Answer 17

• Agency basis (sole/joint/multiple)
• Agency rights (selling/agency)
• Proposed fee
• Marketing costs and disbursements
• Confirmation of no conflicts of interest
• Money laundering regulation requirements
• Timescale for the payment of fees & disbursements
• Details of the practices complaints handing procedure

Question 18

When is an agent typically owed a fee under sole selling rights?

Answer 18

• Contracts are exchanged in a period when sole selling rights exist, regardless of whether the purchaser was found by the agent or not
• Commonly a fee is also due after the sole selling rights period end if the property is sold to a purchaser who was introduced by a firm during the period of the sole selling rights contract

Question 19

When is an agent typically owed a fee under sole agency rights?

Answer 19

Fee is only due if the agent introduced the purchaser within the term of the instruction agreement

Question 20

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

Answer 20

Cause included within Terms of Engagement so that if there is a prospective purchaser ready and able to proceed with a purchase, but the client decides to withdraw, an abortive fee many be charged by the agent

Question 21

What can a vendor issue if a purchaser is taking prolonged time to complete a transaction?

Answer 21

Serve a Notice to Complete, giving the purchaser a deadline to complete (any legal costs of doing this are paid by the prospective purchaser)

Question 22

What happens if a purchaser does not complete a transaction by the deadline included in the Notice to Complete?

Answer 22

• Vendor can rescind the contract and remarket the property
• Any deposit can be retained by the vendor
• Vendor may be able to sue for damages to claim any loss in value (and associated costs) following the sale of the property to another party at a lower sale price

Question 23

If undertaking a property acquisition on behalf of a client, what actions would you take?

Answer 23

• Check for Conflicts of Interest and carrying out money laundering checks
• Agree Terms of Engagement
• Understand client’s objectives and agree search parameters
• Locate suitable properties
• Measurement and valuation
• Check planning use and undertake due diligence
• Check for any rent or service charge arrears
• Negotiation and instruction of solicitors
• Conditional contracts can be agreed for various conditions to be satisfied post exchange of contract and before completion

Question 24

What is a Condition Precedent?

Answer 24

Clause within the contract that must be satisfied before completion e.g. achieving planning consent

Question 25

Give some examples of forms of purchase vehicles?

Answer 25

• Special Purchase Vehicle (SPV) companies - a company formed to buy a property to reduce the payment of SDLT
• Offshore unit trusts e.g. Jersey Property Unit Trusts (JPUTs)
• Real Estate Investment Trusts (REITs) - a company tax resident in the UK which is listed on a Stock Exchange and has at least 75% of its business in property investment
• Joint ventures between two parties

Question 26

What is the difference between the Misrepresentation Act 1967 and the Consumer Protection from Unfair Trading Regulations 2008?

Answer 26

Misrepresentation Act 1967
• Action can be limited by an effective disclaimer
• Civil offence actionable by tort
• Relates only to misrepresentation or false statement of fact by a party during pre-contractual enquiries

Consumer Protection from Unfair Trading Regulations 2008
• Action cannot be limited by a disclaimer
• Criminal offence
• Related to the entire agency process

Question 27

How is your fee typically calculated for a disposal?

Answer 27

“Base fee” of approximately 0.5% up to a threshold, above which an “incentive fee” is paid

Question 28

What abortive fees would you typically negotiate in your terms of engagement?

Answer 28

• ‘Ready, able and willing purchaser’ clause meaning a fee would still be due if the vendor withdrew the property
• Payments of marketing expenses within the marketing budget

Question 29

You receive two offers on a property, one is an all equity purchaser who has offered a lower price, whereas the other is subject to finance, but is offering a higher amount. What would you do?

Answer 29

• Consider my client’s objectives and whether they needed certainty of sale
• If they were time pressured and needed the sale to go through I would advise them that the all equity offer would have a greater level of certainty attached to it
• If they were not under time pressure then they could consider the offering using debt financing

Question 30

What is the difference between exchange and completion?

Answer 30

Exchange - exchange of contracts which makes the matter legally binding between the buyer and the seller

Completion - when the legal ownership of the property is transferred