Purchase and Sale Flashcards
How did you carry out a conflict of interest check?
Sent a companywide email, verified the instruction on our internal conflicts software, against both the client and the building.
What is included in Terms of Business?
Required as part of Estate Agents Act, alongside Terms of Engagement.
CHP
Money Laundering Procedures
Calculation of Fees
Timing of payment
Limitation of Liability
Health and Safety
Anti-Corruption
Data Protection
Equality Act compliance
Why is it important to outline the scope of works?
A requirement of RICS RoC and Estate Agents Act 1979 (Sections 18 + 21). Case of Wells v Devani 2019 - made by ohone and interpreted in context
What is the required AML regulation?
Money Laundering, Terrorist Financing and Transfer of Funds Regulations, 2017 (amended 2022)
What is the RICS Professional Statement relating to purchase and sale?
UK commercial market investment agency, 2017. Came into effect 1st January 2018
What does it ensure?
Deals with Dual agency – illegal, multiple instructions, incremental advice, Personal/Own interest conflict
Define Book Value
The value of a security or asset as entered in internal financial statements
Define ‘net sale proceeds’
The amount received minus all costs and expenses deducted from the gross proceeds.
What is a Transfer of Going Concern?
Where the property is sold as a business
VAT exemption?
Default position - commercial property exempt for VAT purposes. Where the VAT exemption applies, the purchaser or tenant does not have to pay VAT. This means they are unable to recover VAT incurred on related costs.
VAT election?
An owner can elect or opt to charge VAT when selling or leasing property. Benefit - That the LL can also recover VAT incurred on costs relating to property. Eg. refurbishment. But, some businesses unable to recover VAT incurred on costs. Eg financial services, insurance, health
What is a transfer of Going Concern?
Where the purchaser intends to continue to let the property then, assuming certain conditions are satisfied, the transfer is a TOGC. Here, no VAT is charged on the purchase price which is clearly attractive for most purchasers.
Normally, where a property subject to an option to tax is sold with tenants in place or with the benefit of an existing lease, then the vendor will usually need to charge VAT at the standard rate.
What is included in a Request for Bids letter?
Bids deadline, request for the following:
ID of purchaser/purchase price/Funding details/timescale/deposit/DD/data room request/surveys/approvals/conditions/AML
What is a mutual break clause?
Enabling either landlord or tenant to terminate a lease at anytime during the term.
What notable restrictions would have an adverse impact on value?
Use restrictions, titular
What is alienation?
Right granted in a lease for a tenant to assign, sublet or share occupation of demise.
What is included in Class E usage?
Commercial, business and service tenants
What is a defect?
An inherent issue with the building. Eg structural
Define Market Value?
Estimated amount for which an asset or liability should exchange on the valuation date, between willing buyer and seller, at arm’s length, after proper marketing, where both parties have acted knowledgeably, prudently and without compulsion
What is the hierarchy of evidence?
Category A – direct comparables of contemporary
Category B – general market data that can provide guidance
Category C – other sources
What are the benefits of the auction technique?
Allows for quicker process, shorter period of DD, can offer more targeted marketing approach. Contracts exchange at the fall of the gavel.
What is included in the Estate Agents’ Act
7 key principles:
Clarity as to terms of agency
Honesty and accuracy
Cost liability agreement
personal interests exposure
Absence of discrimination
Legal obligation to tell client about offers received
Keep clients’ money separate
Describe Private Treaty
-Parties free to negotiate in own time and without commitment to open market
Advantages include:
- Flexibility, control, vendor not under any obligation to sell
- Confidential
Disadvantages include:
- Potential for gazumping, late decisions not to buy, abortive costs
Describe Informal Tender? (best offers or bids)
Used either at beginning of marketing campain or to bring to conclusion
-not legally binding, can withdraw at any point up to contract
-best and final bids request
Describe Formal Tender? (Sealed bids)
Often used by statutory bodies to give control and transparency over marketing process
High level of public accountability
No opportunity for purchaser to change or increase bid after submission of offer
Blind bids without knowledge of what other parties are bidding
No immediate exchange of contracts upon opening of highest bid.
Differences between informal and formal tender?
Formal
- Provides single chance to bid
- High accountability
- Terms/conditions of sale published in advance with offer to bid letter
- Highest figure accepted (unless vendor states beforehand)
Informal
- Used during private treaty negotiations to obtain best offer from applicants
- Further negotiations can follow on from outcome of process
- Less onerous terms/conditions prepared
- Won’t lead direct to contract for sale
- Used as negotiation mechanism to invite all parties to bid
- Vendor does usually state that under no obligation to accept highest or any offer received
What are assignable measured and building surveys?
Surveys that can be assigned to the new owner when it is transferred
What do you mean by searches?
Local property, water, drainage, environmental, flood search
What are CPSEs?
Commercial Property Standard Enquiries – provide prospective buyer/tenant with essential information about the leased property via pre contract enquiries. There are 7 forms of CPSE.
What was included in your heads of terms for your case study?
Details of purchaser
Details of Landlord
Property, Tenure
Lease term and commencement
Ground rent
Premium
Funding details
Landlord’s conditions – Subject to contract, subject to final IC approval
Tenant’s conditions – provision of full info with clearing all regulatory and compliance requirements
Proof of cash funds
Subject to contract
Subject to final IC approval
Timetable
Taxation
Costs
Exclusivity
Confidentiality
What is a green lease?
Contain additional provisions that oblige LL and tenant to manage and reduce environmental impact of a property. Eg. Energy efficiency measures, waste reduction
Can it add value?
Yes, can futureproof leases against future regulation and statutory requirements
Achieve greater energy and resource efficiency to reduce cost
CSR compliance
What are key provisions of Misrepresentation Act (1967)
Ensure parties have an action against misrepresentation – false statement of fact which prompts an individual to enter into a contract on the basis of that false statement.
What is included in freehold heads of terms?
Property name, tenure, demise, tenancy, vendor, purchaser, purchase price, funding, timetable, deposit, VAT, vendor’s conditions, purchaser’s conditions, exclusivity, confidentiality, costs, agents and solicitor details
What are sole selling rights to a fee?
Agent will be paid if contracts are exchanged in a period when sole selling rights exist, even if the purchaser is not found by the agent.
Fee also due after sole selling rights period ends when the property is sold to a purchaser who was introduced by the firm during period of the sole selling rights contract.
What is a ‘ready, able and willing purchasers’ clause?’
Defined by estate agents act 1979. Included so that when applicant is ready and able to proceed with a purchase but client (disposal) decides to withdraw, abortive fee can be charged by agent.
What is a Notice to Complete?
Vendor serves on proposed purchaser giving deadline to complete. Legal costs are paid by proposed purchaser. If deadline passes, vendor can rescind contract ad remarket property. Can also keep the deposit
Name some different forms of purchase vehicle?
Special Purchase Vehicle (SPV)
Offshore unit trusts such as JPUTs (Jersey Property Unit Trusts)
REITSs - company tax resident in uk listed on Stock Exchange
JV
What actions might you take in property acquisition?
COI
AML check
agreement of ToE
Understand objectives and parameters
Measurement/valuation/check planning use/consent/conditions/any proposed developments in planning register
DD exercise regarding asbestos, title, contamination
Rent/SC arrears check
Neg and instruction of solicitors
Conditional contracts can be agreed for various conditions to be satisfied post exchange
What did you do on AML checks?
Who governs the Estate Agents Act 1979
The National Trading Standards Office, The Estate Agency and Lettings Team
What are the penalties for not conforming with estate agents act??
Prohibition Order
Warning Order
Unlimited fine
Consumer Protection from Unfair Trading Regulations (2008)
False and misleading statements, omission of info, failure to provide or hiding info. Policed by national trading standards
Why typically would someone want to achieve the highest price in formal tender?
because lots of the sales that use this method are from governing bodies. They must be seen to achieve the highest price for their shareholders/interests
Is formal tender legally binding
Not until exchange
Section 18 of estate agents act
Clarity with regard to the terms of the agency. Including all costs and fees highlighted in advance, and the type of agency (Sole Selling Rights for example).
What Does Section 21 of the Estate Agents Act 1979 say?
Transparency regarding any personal interests that may affect your work in estate agency. Disclosure of any ‘connected persons’ who may be set to financially gain from the transaction.
What does the Misrepresentation Act of 1967 refer to?
to false statements or mis-statements that induce the acquisition of a property during pre-contract enquiries. The vendor or agent can be sued for negligence and the contract rescinded
What must clearly be set out in agreement?
Agency basis, rights, proposed fee, marketing costs and disbursements, confirmation of no clonflicts, AML regulations, timescales for fee payment, CHP details
Soho - what pre sale DD did you undertake?
Title plan, understand the lease, any planning applications, checked the EPC
How did you calculate the property’s wault?
Multiply the current rent by the remaining lease term for each of the tenants
Sum the total of results from step 1
Divide the result from step 2 by the sum of current rent for each of the tenants
Victoria - what was your client’s requirement for acquisition?
Core Plus asset, that was reversionary so they would be able to drive value through increasing the rents in line with Victoria’s strong rental growth story
What is investment value?
The value of an asset to a particular owner for individual investment or operational objectives
Foley St - What method of sale did you use?
Private Treaty with informal tender
Soho - What financial appraisals did you run?
DCF
Soho - Take me through both scenarios:
1 - VP be achieved at the earliest opportunity in 9 months at the block date. Refurb and re-let
2 - Lettings completed on the two remaining vacant floors and current tenants renewed at expiry with a light touch refurbishment to their demise. Assume a longer term hold on that basis with rental growth
Why would the 1st scenario give you better result
Higher IRR, better growth
What is a report on title?
Report drawn up by a lawyer that has every legal element of the property drawn up. Not mandatory
WHy is it important to state that valuation is not red book?
No reliance, no liability
What is included in terms of engagement for a P&s instruction?
Date
Confirmation of COI/AML completion
Name of client
Name of property
PII and negotiated liability cap
Disposal strategy
Marketing strategy
Timings
Personnel
What are capital allowances?
Deductions to value that businesses can claim for certain capital expenditure, such as purchase of equipment, machinery, business vehicles
In your case study, what do you mean by a strategic review?
Following inspection of the property, inspected the leases, assessed the likely profile of purchaser, EPC, analysed how best to conduct the sales process
What is Class E use?
Commercial, Business and Service.
employment, business, health, shops and services
Why did you choose private treaty?
-Parties free to negotiate in own time
-Without commitment to open market
-Gives flexibility, control
-No obligation to sell
-It is confidential
What is a report on title?
The report on title is the document that the purchasers’ solicitors produce after they have done all the searches and checks against the property
What are penaties for not complying with estate agents act?
Prohibition Order, Warning Order, Unlimited fine
What are the principles of the RICS Professional Statement UK Commercial Real Estate Agency (2016)?
this professional statement sets out clearly the responsibilities of commercial property agents to ensure they are working to the highest ethical and professional standards. This statement outlines the principles that shape the culture of fairness and transparency that underpin all activities undertaken by real estate agents within whichever country of practice.
What are sole agency rights?
The agent will only be entitled to its fee if it introduces, or (if the contract permits) has negotiations with, the eventual buyer while the agent’s agreement is in force.
What would you do if you received a bid following/coinciding with the first round of bids?
I would present my bid to the client in line with the legal obligation to tell clients about offers received presented in the Estate Agents Act 1979
What are the 7 key principles of the Estate Agent Act 1979?
Clarity as to terms of agency (S18)
Honesty and accuracy
Agreement and liability for costs
Openness regarding personal interests (S21)
Absence of discrimination
Legal obligation to tell the client about offers received
Keep clients’ money separate
What RICS guidance would you have regard to in a sales instruction?
RICS Professional Statement: Conflicts of Interest 2022: An RICS member or regulated firm must not advise or represent a client where doing so would involve a Conflict of Interest or a significant risk of a Conflict of Interest; other than where all of those who are or may be affected have provided their prior Informed Consent
RICS UK Commercial Real Estate Agency (2016): Supports the RICS Rules of Conduct:
1 Conduct business in an honest, fair, transparent and professional manner.
2 Carry out work with due skill, care and diligence and ensure staff are competent.
3 Ensure clients are provided with clear and fair terms of engagement. These should meet all legal requirements and relevant codes of practice including reference to complaints-handling procedures and, where it exists, an appropriate redress scheme.
4 Do the utmost to avoid conflicts of interest and, where they do arise, to deal with them openly, fairly and promptly.
5 Not discriminate.
6 Ensure that all communications (both financial and non-financial subject matters) are fair, clear, timely and transparent.
7 Ensure that all advertising and marketing material is honest, decent and truthful.
8 Ensure that all client money is held separately in appropriately designated accounts and is covered by adequate insurance.
9 Have adequate and appropriate professional indemnity insurance or equivalent in place that complies with the RICS Rules of Conduct.
10 Ensure that it is made clear to all parties with whom you are dealing the scope of your obligations to each party.
11 Where provided as part of the service, give a realistic assessment of the likely selling, buying or rental price, associated cost of occupancy or of the likely financial outcome of any issues,
using best professional judgement.
12 Ensure that all meetings, inspections and viewings are carried out in accordance with the client’s lawful and reasonable wishes, having due regard for the security and personal safety of all parties.
If your Terms of Engagement aren’t signed, can you proceed?
You can carry out background due diligence, however you cannot advise.
