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APC > Purchase and Sale > Flashcards

Purchase and Sale Flashcards

1
Q

What are the differences between Freehold and Leasehold?

A
  • Freehold:
    o Own property and land infinitely
  • Leasehold:
    o Land is owned by a freeholder
    o Less than 100 years’ worth notice
    o Ground rents (historically peppercorn)
    o Service Charges
    o Restrictive covenants
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2
Q

What are the different methods of sale?

A
  • Private Treaty
  • Informal Tender
  • Formal Tender
  • Auction
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3
Q

What are the key details about private treaty?

A

o Most popular method of sale
o Free to negotiate in own time and without commitment

o Advantages:
 Flexibility
 Control over process
 Confidential

o Disadvantages:
 Potential for gazumping
 Late decision to withdraw

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4
Q

What are the key details about informal tender?

A

o Aka Best and Final Bids
o All bids should be opened in front of client or witness
o Invite all interested party in writing to submit ‘best bids’ to timescale.

o Letter includes:
 Required date and time
 Name and address of their solicitor
 Confirmation of finance agreements
 Details of conditions to offer
 Confirm no further offers (escalator bids) accepted
 Reserve the right to not accept highest bid, or any offer made. Without this the process becomes a binding tender

o Advantages:
 Allows for best offers to be received without negotiations
 Increases interest in the property
 Often produces the best offer for the property
 Over Formal Tender:
* Can be developed from private treaty
* Less onerous/binding
* Usually a negotiation technique

o Disadvantages:
 Some purchasers do not like the process
 Can miss out on other potential purchasers by setting a deadline

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5
Q

What are the key details about formal tender?

A

o Aka Sealed Bids
o Bids submitted blind to other party’s offers
o Often used by statutory bodies for transparency
o Similar terms to informal tender (written instruction, state not to accept highest offer)
o High level of accountability
o Terms of sale established prior to offer
o Can lead directly to contract for sale

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6
Q

What are the key details about auction?

A

o Advantages:
 Short timescale
 Certainty of sale assuming reserve met
 Used for unusual property types
 Useful for property of strong interest

o Disadvantages:
 Cost of marketing
 Lack of confidentiality
 Can’t chose purchaser
 Short marketing period

o Terms of Engagement and conflicts before instruction
o Contract detailing auctioneer role – right to decline offers, proxy offers
o RICS guidance on auctioneering
o Contracts exchanged as hammer goes down

o Purchaser’s requirements:
 View property
 Due diligence – legal pack etc
 Read Notice to Prospective Buyers
 Arrange 10% deposit and insurance for exchange
 Provide ID for AML checks

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7
Q

What are the different types of agency?

A
  • Sole Agency
  • Joint Agency – share fee as pre-agreed (billed separately)
  • Multiple Agency – successful agent receives fee
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8
Q

What can you tell me about the sole selling rights clause?

A

o Typical clause that if contracts are exchanged within timescale agreed, even by another agency, fee/remuneration is still payable
o Fee due to agent if sold after agreed timescale but to purchaser found by agent

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9
Q

What can you tell me about the ready and willing purchasers clause?

A

o Should the agent find a purchaser but the vendor withdraws, there can be a fee

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10
Q

What can you tell me about failure to complete a transaction?

A
  • Vendor can serve Notice Complete on purchaser, giving them a deadline to complete
  • Legal costs paid by proposed purchaser
  • Deposit can be retained by vendor
  • Vendor can also sue for damages (loss in value) when later sold at lower price to another party
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11
Q

How would you manage off market transactions?

A

Fine but advise the vendor on the potential affects of this on value

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12
Q

What is included in an agency instruction?

A
  • Requirement of Act (s18 and 21)
  • Cooling off period of 14 days
  • Provide:
    o Agency basis (sole/joint) – must define also
    o Agency rights
    o Proposed fee
    o Marketing costs and disbursements – must provide details
    o Conflicts of interest
    o AML requirements
    o Timescale
    o CHP outlined
  • Must be signed and returned
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13
Q

Timeline of sales instruction? (apply to one of your examples)

A
  1. Receive Request
  2. Check conflicts
  3. AML checks vendor
  4. Statutory enquiries
  5. VAT status of property (generally exempt – no VAT to be paid by purchaser. Elected if = within 3 years old or owner elects. Can be recovered – decision lasts for 20 years and new purchaser gets choice to elect or not)
  6. Inspect property (only special circumstance when wouldn’t)
  7. Send Instruction and Terms of Engagement
  8. Receive agreement by client (required by Act)
  9. Confirm position on fixtures and fittings (dilapidations – returning the property to the state it was in when you took occupation, based on the lease wording)
  10. Prepare Marketing Report including valuation (non formal/ non red book – should put in writing)
  11. Prepare Particulars and attain approval (required)
  12. Undertake marketing
  13. Viewings
  14. Receive Offers – (must show to client unless instructed not to)
  15. Negotiate Sale – AML checks
  16. Heads of Terms
  17. Instruct Lawyers
  18. Monitor process
  19. Issue invoice upon completion
  20. Remove board once completed
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14
Q

Extras from a property acquisition side?

A
  • Conflicts checks
  • AML checks
  • Technique to find properties
  • Valuation
  • Statutory enquiries
  • Rent
  • Negotiate
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15
Q

What are different purchase vehicles?

A

o Special Purchase Vehicle – specially formed company for purchasing the property (SDLT savings)
o Offshore trusts
o REITS
o Joint ventures

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16
Q

What is contained within the particulars?

A
  • Front Cover – photo, address, sale/let, tagline of what it is
  • Location, Description, Areas, Tenure/Tenancies, Planning, EPC, Business Rates, VAT (elect/not elect), Contact Details, Goad Plan/Map
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17
Q

What is a data room?

A
  • Information additional to the sales particulars that are made available to the potential purchasers
  • E.G. Planning information, Asbestos Registers
  • Password for this given out
  • Access via SW Website
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18
Q

What are the different marketing methods?

A
  • Listed on Costar
  • Listed on Zoopla and Rightmove depending on level of interest
  • SW Website
  • Generally undertaken by a secretary
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19
Q

What does without prejudice and subject to contract mean?

A
  • Put on emails when negotiating to
  • Without Prejudice – can’t be referred to in court proceedings as evidence, allows parties to negotiate whilst covered
  • Subject to Contract – indicated that the party wish to remain uncommitted until a formal agreement has been reached
20
Q

What can you tell me about the Estate Agents Act 1979?

A
  • Covers the duties of estate agents to clients and third parties

Section 18 – Terms of the Agency:

  • Detail all fees within Terms of Business
  • Itemise all payments

Section 21 – Declaration of Personal Interests:

  • Disclose personal interests ‘connected person’
  • Acting dishonestly
  • Not disclosing offers to the client

Penalties:
- Licence can be taken away (negative licensing)
- Prohibition Order - stops agent acting
- Warning Order – written warning
- Can be against individual or practise

21
Q

What can you tell me about the Misrepresentation Act 1967?

A
  • Relates to a false statement which has the effect of inducing a party to purchase
  • During pre-contractual enquiries
  • Civil offence
  • Types of Misrepresentation:
    o Fraudulent
    o Negligent
    o Innocent
  • Remedies:
    o Sued for damages – compensation
    o Unwinding a contract – end a contract
22
Q

What is affirming a contract?

A
  • Continue to use despite knowing it was misrepresented to you (accepting the fault)
23
Q

What do you know about the Consumer Protection for Unfair Trading Regulations 2008?

A
  • Prohibits unfair practices by traders
  • Policed by Trading Standards
  • Agents must declare all good and bad elements of property
  • Offences:
    o The General Prohibition – Acting without due diligence
    o Misleading Action – Providing false information
    o Misleading Omission – hiding material
  • Can’t put pressure on purchaser
  • Can’t disclaim against this regulation
  • Defences:
    o A mistake
    o Reliance on third party information
  • Penalty:
    o Prohibition Order
    o Fine - compensation also can be due
24
Q

What is the Consumer Rights Act 2015?

A
  • Further legislation to protect consumers
  • Letting agents must clearly display a summary of their charges both in their office and on website for the lettings and management of property
25
Q

What can you tell me about the Money Laundering Regulations Act 2007?

A
  • Provides details of AML processes and checks
  • Must ensure that AML policies are up to date
  • Must have ML Reporting Officer
26
Q

What is the Tenant Fees Act 2019?

A
  • Prohibits various fees within tenancy agreements e.g. administration cost
27
Q

What can you tell me about RICS UK Commercial Real Estate Agency 2016?

A
  • Professional Statement
  • Provides key information on areas:
    o AML checks
    o Marketing the property
    o Methods of Sale etc
  • List of Core Principles for Agents:
    o Act in honest, fair and transparent way
    o Due diligence and care
    o Provide clients with terms of business
    o Avoid conflicts of interest
    o Do not discriminate
    o Client Money Handling Procedure
    o PII
28
Q

What do you know about Client Money Handling Procedure?

A
  • RICS Professional Statement governing this
  • Client money should be held separately from other monies
  • Can be dedicated client accounts
  • Must be able to account for any client’s money at all times
  • Bank charges should be paid from office account
  • Client accounts should always be in credit
  • Client requires access to their money on demand
29
Q

What can you tell me about the VAT status of properties?

A
  • Landlord can choose to elect a property for VAT
  • VAT costs can be recovered if VAT registered
  • Elected if = within 3 years old or owner elects
  • Decision lasts 20 years or until moved to next owner
  • Owner would elect because they can then charge VAT on rent they charge if its an investment property
30
Q

What is a capital allowance?

A
  • A form of tax relief upon the cost of purchasing a property
  • Can be offset against taxable profit
31
Q

What are the regulations for marketing signage?

A
  • Town and Country Planning Regulations 2007
  • Maximum non-residential 2m² flat and 2.3m² V-board
  • Planning permission required for more and one board per building
  • Must not project more than 1m from face of building
  • Not above 4.6m from ground
  • Planning consent for:
    o Illuminated
    o Remote boards
    o Listed buildings or conservation areas
  • Must be removed 14 days after transaction
32
Q

What can you tell me about the RICS UK Residential Real Estate Agency ‘Blue Book’?

A
  • Professional Statement
  • Provides:
    o Relevant Legislation
    o Standards and Ethics
    o Property Marketing
    o Acting for the vendor
33
Q

What can you tell me about the Land Registration Act 2002?

A
  • Framework for electronic conveyancing
  • All freeholds and leases over 7 years must now be registered to HMLR with a valid lease plan
  • Compliance:
  • 1:100-1:200
  • Scale noted on the plan
  • North point
  • Red outline etc…
34
Q

What is contained within a Heads of Terms?

A
  • Vendor and Purchaser Details
  • Agents Details
  • Solicitor Details
  • Address
  • Sale Price
  • Deposit
  • Finance Arrangements
  • Conditions
  • VAT Status
35
Q

What is the difference between Sole Agency and Sole Selling Rights?

A
  • Sole Agency: Fee only due if agent finds purchaser
  • Sole Selling: Fee due after sale even if purchaser not found by agent
36
Q

What are examples to conditions of a purchase?

A
  • Board approval
  • Planning approval
  • Finance approval
  • Surveys
37
Q

Are Heads of Terms legally binding?

A

No, they are subject to contract

38
Q

Would you ever recommend the acceptance or rejection of an offer?

A

No, can not directly recommend. However, can inform client of an offer that meets their objectives.

39
Q

What happens during the legal process?

A
  • Solicitors provide a draft contract
  • They also provide statutory documents
  • Solicitors liaise and negotiate
  • Once contract agreed, can be exchanged and deposit paid
40
Q

What is the RICS document for Clients Money Handling and what can you tell me?

A
  • RICS Clients Money Handling Professional Statement

Areas of good practice:
- Holding clients money
- Providing information to clients
- Compliance

41
Q

What caveats are included within particulars?

A

Misrepresentation Act:
- None of the statements are fact
- Not tested facilities
- Purchaser’s must satisfy their own investigations - a.k.a. ‘Caveat Emptor’

  • Every reasonable effort made to ensure accuracy of particulars although not fact
42
Q

What are the three bases for the judgement of liability as set within case law?

A
  • Foresee-ability = was it foreseeable?
  • Proximity = are the parties closely related enough?
  • Fairness = is it reasonable?
43
Q

What is the ‘Regulation of Property Agents’?

A
  • New proposed regulation
44
Q

What would you accept as proof of funds?

A
  • Recent Bank Statement for the deposit or cash amount
  • Mortgage in Principal
  • Evidence of an ongoing property sale
45
Q

What advice would you give your client if there was a lack of interest or low offers?

A
  • Advise on the condition of the market
  • Advise on the offers received
  • Re-address objectives of the client
  • Negotiate with the parties to increase any offers
  • Propose enhanced marketing
46
Q

What are dilapidations?

A
  • Returning the condition of the property to that of which it was let at

APC (32 decks)

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