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APC > Purchase and sale > Flashcards

Purchase and sale Flashcards

1
Q

What legislation do you adhere to when dealing with agency /leasing/letting / purchase/sale?

A

The Estate Agents Act 1979

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2
Q

To what does The Estate Agents Act 1979 apply?

A
  • Disposal or acquisition of an interest in land
  • Freehold property
  • Leasehold property with capital value
  • Land as well as buildings
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3
Q

What does The Estate Agents Act 1979 seek to promote?

A

HAT DO MAO
- Honesty and Accuracy
- Clarity in Terms of engagement (Section 18)
- Absence of Discrimination
- Openness regarding personal interests (Section 21)
- Keep clients’ Money separate
- Agreement and liability for costs
- A legal obligation to tell the client about all Offers received

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4
Q

What are the two main sections of The Estate Agents Act 1979 relevant to purchase and sale/leasing and letting?

A
  • Section 18
    o Agree terms of engagement prior to proceedings with instruction
    o Specify all costs/fees in advance, in writing in terms of business
    o Itemise all payments (no global budget)
     any additional costs incurred by the client in the course of marketing the property:
  • Brochure
  • Board
  • Photography
  • Website
    o Specify nature of agency and selling rights
     Sole selling rights/sole agency rights
     Sole, joint sole agency or multiple agency
  • Section 21
    o Disclosure of personal interests
     A ‘connected person’ – someone who could benefit financially from the transaction such as a relation of business associate
    o PI should be declared on the HoT’s and the sales particulars
    o It will not preclude you from acting on that client’s behalf
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5
Q

Who polices The Estate Agents Act 1979 and what are the penalties for non-compliance?

A
  • National Trading Standards Estate & Letting Agency Team (NTSEAT)
  • Negative licencing – the right to be an estate agent can be taken away/not granted
  • Warnings can be made against an agent
    o Prohibition order stops an agent practicing
    o Warning order: written order not to undertake action again
    o Usually around 10 orders every year
    Costs can be awarded
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6
Q

What is a cooling off period?

A
  • Clients are allowed up to 14 days to change their mind if they no longer want to instruct the agent
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7
Q

What is the Consumer Protection from Unfair Trading Regulations (CPRs) (2008) and Business Protection from the Misleading Marketing Regulations (BPRs) (2008)?

A
  • An offence under the CPRs and BPRs are in marketing (e.g. sales particulars, CGIs, boards) and it is criminal
  • The CPRs and BPRs replaced the Mis-descriptions Act 1991 which was repealed in October 2013
  • CPRs relate to business to consumer
  • BRPs relate to business to business advertising
  • Regulations apply to all lettings and sales and online agency
  • Agents have a duty of care to clients and interested parties
  • Agents must not exert undue pressure on potential buyers
  • Agents must declare everything known about a property (good and bad)
  • If some information is discovered during the agency process, this information must be passed on to all interested parties
  • Any omissions can also lead to a breach of the regulations
  • Full due diligence is required for all new instructions
  • Agents must demonstrate due diligence audit trails
  • Must be validated by client
  • Disclaimers do not apply to this criminal offence
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8
Q

What is an example of unfair practice?

A
  • Giving false or misleading information
  • Hiding or failing to provide information
  • Omissions
  • Exerting undue pressure on consumers
  • Failing to show professional due diligence
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9
Q

Who are the CPRs and BPRs policed by?

A
  • LATSO – Local Authority Trading Standards Office
  • Max penalty for breach is unlimited fine and/or a prohibition order
  • Compensation may also have to be paid to the complainant up to £25,000
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10
Q

What is Caveat Emptor?

A
  • “Let the Buyer Beware”
  • Buyer is responsible for undertaking full due diligence before purchasing
  • It is important to caveat emptor – this ensures that the vendor is not under a duty to try and identify all potential problems and bring them to the attention of a purchaser
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11
Q

What is the Consumer Rights Act (2015)?

A
  • Gives consumers new rights and remedies
  • Letting agents must clearly display a summary of their charges both in their office and on their website for the letting and management of property
  • Information must be provided based on calculation of the charges and who is responsible for payment
  • Policed by local authority
  • Penalty: fine up to £5,000 for each breach
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12
Q

What is the Misrepresentation Act 1967?

A
  • It does not deal with marketing
  • Act relates to a misrepresentation or a false statement of fact made by a party during pre-contractual enquiries which has the effect of inducing a party to purchase
  • The vendor and/or agent can be sued for damages (which are limited to the loss incurred by the claimant (e.g. legal fees, building surveys, etc.)) and/or the contract rescinded
  • Civil offence under tort
  • Misrepresentation can be fraudulent, negligent or innocent
  • Agent has duty of care to check information or opinion is reliable
  • Exclusion/disclaimer clauses may be effective in protecting the vendor and their agent if fair and reasonable
  • Example:
    o If a prospective purchaser says are you aware of any disputes between the seller and the neighbours in respect of party walls and the file contains a pending court case relating to a party wall dispute and if you say if they find out about that, they aren’t going to buy the property, so I will just say no and claim I didn’t know about it so the party buys the property to find out that they are party to that legal action and they are taking over the party walls
    o If however, you look in the file are there is nothing so you ask the client and they say no I’m not aware of anything , you would state “not to the best of our knowledge but you are advised to seek your own professional advice by way of a solicitor”
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13
Q

What does HG disclaimer say?

A
  • Misrepresentation Act 1967 – particulars are believed to be correct but accuracy is not guaranteed
  • Particulars do not constitute an offer or contract
  • HG accept no legal responsibility for any statement or representation in brochure
  • Any prospective purchaser must satisfy themselves by inspection or statements saying they are happy to rely on information unless they are satisfied
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14
Q

What is the leading case for misrepresentation?

A
  • Hedley Byrne & Co v Heller & Partners
  • Relates to liability to negligent statements
  • Refers to test of reasonableness
  • Applies to professional opinions and 3rd party advice
  • Court held that no duty of care was owed by the bank to the plaintiff relying on advice to the customer’s creditworthiness, because there was no special relationship involving the undertaking of responsibility
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15
Q

What tests did the Hedley Byrne & Co Ltd v Heller & Partners case create to decide against liability for negligent statements?

A
  • Foreseeability – the damage is reasonably foreseeable
  • Proximity – the relationship can be characterised in law as being sufficiently proximate
  • Fairness – it is fair and reasonable for such a duty of care to arise
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16
Q

What are CPSE enquiries?

A
  • Commercial Property Standard Enquiries
  • After a deal has been agreed and it’s in lawyers hands, there will be pre-contractual enquiries that are raised on matters that a prospective buyer/tenant may wish to know about a property
  • CPSEs are usually raised by buyers through their solicitors with the seller’s representatives
  • The disclaimers that you have at the bottom of particulars may be effective in protecting the vendor/agent if they are fair/reasonable
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17
Q

What is the Tenant Fees Act (2019)?

A
  • Act aims to improve transparency and affordability in the residential lettings market
  • Bans various fees charged to residential tenants for new lettings
  • Refundable tenancy deposits must now be capped at 5 weeks of rent if rent is less than £50,000 per annum or 6 weeks of rent if above
  • Policed by National Trading Standards Estate & Letting Agency Team
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18
Q

Is there any proposed legislation that will apply to estate agents across the UK and letting and management agents in England?

A
  • Regulation of Property Agents
  • Final government report published in July 2019
  • Proposed all property agents will be regulated by an independent regulator, with mandatory qualifications for agents and a code of practice
  • All qualifying agencies will be licensed and abide by new code of practice
  • Transparency of charges
  • Disclosing COI
  • Administration of SC
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19
Q

If you were to put a marketing board on a property, what would you need to check first?

A
  • If it is listed as you would need planning permission
  • If there are any restrictions (e.g. there are some by-laws in Westminster)
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20
Q

Where does it provide the requirements for marketing signage?

A

The Town and County Planning Regulations (2007)

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21
Q

What are the requirements for marketing signage?

A
  • Planning consent required for non-residential boards over 2 sq m (flat) and 2.3 sq m (V board)
  • Only one board per building
  • Residential boards – max size: 0.5 sq m (flat) and 0.6 sq m (V board)
  • Must not project more than 1m from face of building
  • Must not go above 4.6m from ground in a safe condition
  • Need planning consent for:
    o Illuminated boards
    o Boards on listed buildings and in conservation area
  • Must be removed 14 days after completion of transaction
  • Certain local authorities have more restrictive requirements (e.g. Westminster)
  • Must have owner’s approval
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22
Q

Who are boards policed by?

A

Local Planning Authority who can remove boards and issue fines and order costs

23
Q

What are the restrictions for marketing boards in Westminster?

A

In Westminster, there are some by-laws:
- You cannot attach a marketing board to the building itself
- It has to be attached to the railings outside the building or displayed on the ground floor behind the window on an easel (either a flat board or light box)
- It has to be black and white if its attached to the railings outside the building

24
Q

What is the Land Registration Act 2002?

A
  • Provides a framework for electronic property conveyancing, by allowing formal documents to be executed electronically
  • All freeholds and new leases granted for terms over 7 years or existing leases sold or assigned with 7 years left to run must not be registered with the Land Registry with a compliant lease plan
  • Introduced new regime for adverse possession (squatters rights) – prove 10 years of use
  • Aiming to achieve comprehensive registration of all property and land by 2030
25
Q

What constitutes a compliant plan for all freehold instructions?

A
  • Drawn to a metric scale (normally 1:100 or 1:200)
  • Have a scale measurement bar
  • Have the scale noted on the plan
  • Full address with postcode
  • North point
  • Demise outlined in red on the inside edge of the property
  • Include a 1:1250 scale location map (urban areas)
26
Q

What forms of tax are there relating to agency work?

A
  • VAT
    o A LL can choose to elect a property to charge VAT, to recover VAT on costs expended. When this happens rent (and any SC) is charged subject to VAT
    o This has implications for occupiers who cannot be VAT registered
    o Specialist advice is recommended
  • Capital allowances
    o Important form of tax relief upon capital expenditure for the construction or purchase of commercial property or business assets
    o They can generate substantial tax savings/relief on the value of plant and machinery fixtures such as AC and lifts
    o The allowances can be offset against profit
    o Specialist advice is required
  • Inheritance tax
  • Business rates
  • Capital gains tax
27
Q

Why would you need to confirm with the vendor the VAT position prior to sale / what is the relevance of that?

A

VAT would need to be charged on the sale or it would be a Transfer of Going Concern (TOGC)

28
Q

What is a TOGC used for?

A
  • TOGC purchases are not treated as a supply of goods or services for VAT purposes
  • It is used to avoid having to pay the VAT on the purchase price
  • Example:
    o In the sale of a property let to a tenant. If the property is registered for VAT and the rent is subject to VAT, it may be possible not to charge VAT on the sale
29
Q

What sort of tenants do not pay VAT on their rents?

A
  • Charities
  • Medical practitioners
  • Financial institutions
30
Q

Why would a landlord elect to charge VAT on a building they’ve bought?

A

They can claim back the VAT on building works

31
Q

What are the 4 methods of sale?

A
  • Private treaty
  • Informal tender
  • Formal tender
  • Auction
32
Q

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

A
  • Client objectives
  • Public accountability
  • Current and likely future market conditions
  • Likely level of demand for the property
  • Timing requirements
33
Q

What is private treaty?

A
  • The parties are free to negotiate in their own time and without commitment in the open market
  • Most popular (90% of sales)
  • It is a private matter
  • Advantages:
    o The parties can control the process
    o Flexibility
    o Vendor not under any obligation to sell
    o Confidential
  • Disadvantages:
    o The potential for gazumping (lose deal as higher bid comes in) or gazundering (offer high then reduce bid)
    o Late decisions not to buy
    o Associated abortive costs
    o Market price is hard to estimate
     You go out at a quoting price but how do you know that there isn’t someone prepared to pay more?
34
Q

What is informal tender?

A
  • Best bids
  • Used 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
  • Not legally binding so either party can withdraw at any point up to the contract
  • All bids should be opened in front of the client or an independent witness/line manager
  • Agent invites in writing all interested parties to submit their ‘best and final offer’, ‘best bid’ or ‘best and final bid’ in accordance with prescribed timescale
35
Q

What information should be included in a ‘best bid’ letter to interested parties?

A
  • Date and time of receipt of the written offer
  • Timescales
  • Solicitors details
  • Confirmation of finance arrangements (cash/debt)
  • Conditions (is it subject to contract/inspection/survey)
  • Confirmation that offers of a variable nature will not be considered (e.g. an escalator bid (offering more than highest bid received))
  • “The vendor reserves the right not to accept the highest, or any, offer made”
    o Without this, informal best bids process could become a binding tender
36
Q

What is included in a best bid offer?

A
  • Price
  • Purchaser
  • Solicitors details
  • Confirmation of finance (cash/debt)
  • Track record
  • Conditions
  • Subject to contract
37
Q

What would you do if you received a late bid in informal tender?

A
  • In the bids letter, it would say that that any offer that comes in after that deadline, they have the right to refuse/accept
  • Report offer to client in line with Estate Agents Act 1979
  • Client is allowed to accept
  • I would advise them that it would be unfair to the other bidders to accept in line with RICS Rule of Conduct to promote trust in the profession and act with integrity
38
Q

What is formal tender?

A
  • Sealed bids
  • Often used by a statutory body (e.g. governments, councils or charities) in order to have control over the marketing process to provide a high level of public accountability, or where there may be strong interest for the property
  • Full marketing material, to include a comprehensive legal pack, must be provided in advance of the tender process
  • Blind bidding in a prescribed form
  • All bids should be opened in front of client/independent witness/line manager
  • No opportunity to change/increase their bid
  • Can lead to straight exchange of contracts unless stated otherwise (quick)
39
Q

What is the main difference between formal and informal tender methods of sale?

A
  • Formal tender (sealed bid):
    o Provides a potential purchaser with a single chance to bid for a property
    o High level of accountability
    o Detailed terms/conditions for sale are prepared by vendor and published in advance with offer to bid letter
    o No opportunity for a further bid
    o Highest figure is accepted (unless vendor reserves right to refuse any/all offers accepted and not agree to take highest bid)
    o It is possible for formal tender to lead directly to a contract for sale
  • Informal tender (best bid):
    o Can be used during private treaty negotiations to obtain a best offer from applicants
    o Further negotiations can follow on from the outcome of this process
    o Usually less onerous term/conditions are prepared
    o The informal tender will not lead directly to a contract for sale
    o It is sometimes used as a negotiating mechanism to invite all parties to bid
    o The vendor does usually state that they are under no obligation to accepted the highest/any offer received
40
Q

What is auctioneering?

A
  • Auction is a public sale of goods that are sold to the highest bidder
  • Advantages:
    o Quick process to dispose
    o Certainty of sale (if reserved figure is achieved)
    o Good for property that is hard to value
    o Contract binding at drop of the hammer
    o Wide exposure to bidders (extensive database)
  • Disadvantages:
    o Cost of promotion and publicity
    o Lack over confidentiality of price sold
    o Vendor cannot choose purchaser
    o Failure to sell can cause blighting
     If it doesn’t sell people assume something is wrong with it (if no one else wants to buy why should I)
    o Intensive nature of short marketing period (normally a window of 4 weeks)
41
Q

What is the auction procedure for vendor?

A
  • ToE must be agreed in writing in advance
  • COI checks undertaken prior
  • ML checks undertaken for all vendors and proposed purchasers in advance
  • Clarity required regarding auctioneers rights to refuse bids, to regulate bidding increments, to accept phone, internet, postal bids and to sign contract on behalf of the vendor
  • Full due diligence completed on property prior to sale
  • All relevant documentation regarding the property to be sold must be available for inspection in advance
  • General conditions of sale, memorandum of sale and any notices to bidders are to be published by auctioneer
  • Set reserve price
  • Contracts exchange at the fall of the hammer
  • Prepare auction particulars in accordance with CPRs 2008 and Misrepresentation Act 1967
42
Q

What is the auction process for purchaser?

A
  • View property
  • Consider a structural survey
  • Take legal advice and complete due diligence
  • Read the Notice to prospective buyers
  • Arrange a 10% deposit + insurance for exchange
  • Provide ID for ML procedures
43
Q

What are the 3 types of agency?

A
  • Sole agency – only 1 agent
  • Joint agency – 2/more joint agents sharing a fee on a pre-agreed basis
  • Multiple agency – any number of agents but only the successful agent gets a fee
44
Q

What agency rights are there?

A
  • Sole selling rights
    o Remuneration is payable if contracts are exchanged in a period when sole selling rights exist, even if the purchaser/tenant is not found by the agent but by another party including the client
    o Also, a fee is due after sole selling rights period ends when the property is sold to a purchaser who was introduced by the firm during the period of sole selling rights contract
  • Sole agency rights
    o The agent gets paid a fee if they are successful in finding a buyer/tenant within the agreed period of appointment (typically 3 to 6 months)
     If you get appointed as sole agents for 3 months, you have to find a buyer/tenant within that 3 months. You don’t have to transact within 3 months but you have to have introduced that buyer/tenant within 3 months
    o This is less advantageous to agent as they will only get a fee if they introduce the party
    o If client finds purchaser, no fee is due
  • Joint sole selling rights
    o Same as above but for joint agency and fees are split
45
Q

What is the timeline of a sales instruction?

A
  • Receive instructions from client
  • Check competence and independence (no COI or PI)
  • Issue ToE
    o Confirmed my appointment as sole agent
    o Fee was 1% of the sale price + VAT
  • Receive signed ToE (s.18 of the Estate Agents Act 1979)
  • Complete and record money laundering checks (Money Laundering Regulations 2017)
  • Gather information
    o inspection details
    o leases
    o legal title documents
    o planning information
    o floor plans
    o warranties
  • Undertake due diligence
    o Read lease(s)
    o Environmental
    o Planning
    o legal
    o contamination
    o tenant covenant status
    o other statutory enquiries to ensure there are no materials which may be detrimental to the sale of the property
  • Check VAT position of vendor and whether the sale has TOGC status
  • Inspect in accordance with the RICS Guidance ‘Surveying Safely’ taking detailed notes/photos
  • Measure in accordance with the Code of Measuring Practice / IPMS 3
  • Research market and assemble, verify and analyse comparable evidence
  • Undertake valuation of the freehold (not RB Global)
  • Prepare marketing report to vendor with full recommendations
  • Obtain written approval of contents of marketing material (CPRs 2008 and Misrepresentation Act 1967)
  • Undertake marketing campaign as agreed
  • Negotiate sale
  • Draft HOTs and instruct lawyers
  • Liaise with vendor’s solicitor in respect of Commercial Property Standard Enquiries (CPSEs)
  • Assist with queries during legal formalities
  • Issue invoice upon completion of transaction and retain file
46
Q

What information must be included in ToE for a sale/purchase?

A
  • Remember cooling off period of 14 days (Consumer Rights Act 2015)
  • Agency basis (sole/joint agency)
  • Agency rights (sole selling or sole agency rights)
  • Proposed fee
  • Marketing costs and disbursements
  • Confirmation of no COI
  • ML regulation requirements
  • Timescale for payment of fees and disbursements
  • Details of firm’s CHP
  • Must be signed and returned to agent before marketing can commence
47
Q

What is a ready, willing and able purchasers clause in your ToE?

A
  • Defined by Estate Agents Act 1979
  • Clause if often included so that if the client pulls the plug at the point of exchange and the purchaser is ready, willing and able, you should still get your fee
  • It protects yourself as an agent if you believe that the client may not be a true seller (e.g. if clients want to test the market/a free valuation) but this involves time and costs
48
Q

Before you begin your marketing campaign, what else do you need to have?

A

EPC and Asbestos Report

49
Q

What is the importance of sustainability on the sale/acquisition of a property?

A
  • The EPC and new regulations have significant importance on the value and saleability of the subject property
  • It is becoming common for investors to want a certain grade of EPC rating – shows that it is of modern construction using environmentally friendly materials, well insulated and a modern building
  • It is going to be of sufficient environmental safety for years to come – future proofing
  • Costs of improving the EPCs to bring them up to minimum standards even if they might be acceptable at this stage
50
Q

What happens if there is a failure to complete?

A
  • Vendor can serve a Notice to Complete on the proposed purchaser giving them a deadline to complete
  • Legal costs for this work are to be paid by proposed purchaser
  • If deadline is passed, vendor can rescind the contract and remarket the property
  • Any deposit can be retained by vendor
  • Vendor could sue for damages to claim any loss in value (and associated costs) following sale of property to another party at lower price
51
Q

When was this particularly relevant?

A
  • When the buy-to-let market was so strong (2006/2007)
  • But then the credit crunch came and that LTV suddenly dropped so when it came to completion and the buyers went to the bank and said they need their mortgage, they said they’ll give them their 75%, but it isn’t worth as much anymore, so suddenly there’s that shortfall so they’d fail to complete
52
Q

What is the timeline for a property acquisition?

A
  • Check COI and competence
  • Undertake ML checks
  • Agreements of ToE
  • Understand client objectives and agree search parameters
  • Consider techniques to find properties (cold calling/advertising/websites)
  • Measurement and valuation
  • Check planning use/consent/conditions/any proposed developments in the local planning register
  • Undertake due diligence
    o Asbestos
    o Legal title
    o Contamination
    o Tenant’s covenant check
    o Flooding
    o No material factors that would diminish the value of the property
  • Valuation of property
  • Arrange for structural survey
  • Check for any rent/SC arrears
  • Covenant approval information to be supplied to the LL/vendor
  • Negotiation
  • Instruct solicitors
  • Conditional contracts can be agreed for various conditions to be satisfied post exchange of contract and before completion
    o E.g. Achieving planning consent or vacant possession
53
Q

What forms of purchase vehicles are there?

A
  • Special Purchase Vehicle (SPV) companies – a company that is formed specifically to buy a property to reduce the payment of SDLT
  • Offshore unit trusts
  • REITs – a company tax resident in UK listed on Stock Exchange and has at least 75% of its business in property investment
  • Joint ventures
54
Q

What is includes in the HOTs?

A
  • Date
  • Identify property and address and premises
  • Purchaser and vendor details
  • Solicitors details
  • Tenure
  • Purchase price
  • Funding
  • VAT
  • Conditions
  • Timings
  • Costs
  • Subject to contract

APC (21 decks)

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