Purchase and Sale Flashcards
What is the legal process to execute a land purchase?
What are the four main methods of sale
- Private treaty
- Formal tender
- Informal tender
- Auction
What is Private treaty?
- Most common method of sale.
- Typical approach used by residential estate agents to sell a house.
- The property is marketed openly (marketing particulars) to afford a potential purchaser to TREAT the seller with an offer.
- Offers made and suitable purchaser usually selected after recommendation is made by the sellers agent (right level and if purchaser is able to proceed)
- Usually ask for:
1. Proof of funds
2. Solicitors details
3. Contextual information on chain or related issues
What are the advantages and disadvantages to private treaty?
Advantages:
- No obligation to sell
- Relatively cheap
- Advertising can be limited or extensive depending on Client requirements
- FLEXIBLITY to negotiate in own time
Disadvantages:
- gazumping (rasing price) and GAZUNDERING (lowering price), both considered unethical
- Risk of LATE DECISIONS not to buy (withdrawals) abortive costs
- not well informed - PRICE could be over or under stated
What is a formal bid?
- Relatively uncommon
- primarily used by public bodies to demonstrate ACCOUNTABILITY
- Costly due to administrative requirements
- Formal bid pack (full marketing material, legal pack and requirements for contents of written bids e.g. excess of a specific figure) issued
- Applicant BID BLINDLY (no alterations)
- After closing date, offers opened in front of an independent witness and sellers agent makes a recommendation which bid to accept.
- After bid is accepted contracts are exchanged immediately. No further negotiations
What are the advantages and disadvantages to formal bid?
Advantages
- Demonstrates accountability
Disadvantages
- Costly - admin requirements
- Time consuming to prepare
- No opportunity to negotiate
- Must accept bid
What is an informal bid (also known as sealed bids)?
Used when:
1. GOOD MARKET DEMAND or 2. Negotiations need to be closed after a period of marketing via Private Treaty
Seller invites buyers to submit WRITTEN best and final bid at a SPECIFIC DATE AND TIME. Generally accompanied with:
- SOLICITOIRS DETAILS
- FINANCIAL ARRAGEMENTS
- CONDITIONS
- Bids opened in front of an independent witness
- No obligation to accept highest bid (or any bid)
- Either party can withdraw up to exchange - not legally binding
Used for
- Sensitive sites - development
- Price is not the only consideration
- Property requires modernization
What are the advantages and disadvantages to informal bid?
Advantages
- Do not have to accept the highest offer (or any offer)
- Can withdraw up to exchange
- Can be used for sensitive sites
Disadvantages
- Higher costs that private treaty
- Can withdraw up to exchange
What happens if there is a late bid in an informal tender
Seller needs to be informed (Estate Agency Act 1979).
RICS considers accepting late bids as unethical practice
What is Auction Sale (aka method of last resort) ?
Used when property is:
- Unique
- Cannot be priced accurately
- QUICK SALE
- High demand
- Serious defects
Should produce the highest price for the circumstances. At auction contracts are exchanged and deposit is paid (usually 10%).
May appeal to cash buyers
What are the advantages and disadvantages of auction?
Advantages:
- Short certain timescales can be achieved
- ‘Best price’ can be achieved after wide market exposure
- The property can be sold with certainty over selling terms
Disadvantages
- Expensive advertising costs
- Not confidential
- Short marketing period
- Failure to sell - property might be blighted
- Little control over purchaser
What factors should be considered when choosing a method of sale?
- Client’s objectives
- Public accountability
- Market conditions
- Timing of sale
- Marketing budgets
What are the different types of property interests that can be bought and sold?
Section 1 of the THE LAW OF PROPERTY ACT 1925 define that land can be bought and sold as
FREEHOLD - an estate in fee simple absolute in possession
LEASEHOLD - A term of years absolute
Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 requires that any contract for the sale of freehold land be in writing.
What is the Estate Agency Act 1979?
The Estate Agency Act 1979
Applies when there is a acquisition or disposal of a freehold interest in property or a leasehold with capital value
It is a key piece of legislation that regulates the activities of estate agents. It ensures FAIR AND ETHICAL PRACTICES and provides PROTECTION for both buyers and sellers.
S18 - Clear agency terms - including costs, in writing
S21 - declaration of any personal interests in marketing particulars and terms of engagement
Set out:
- DENFITION of “ready willing and able purchaser”
- AGENCY BASIS
- if sole SOLE SELLING RIGHTS apply
What are the different agency basis in The Estate Agency Act 1979?
Sole Agency
Joint Sole Agency (2+ sellers sharing a fee)
Multiple Agency with several agents (successful party receives the entire fee)
What offences can take place in the Estate Agency Act 1979 and what are the penalties for non-compliance?
Offences:
1. Acting dishonestly
2. Not providing clarity over terms of engagement
3. Not disclosing a personal interest
4. Not telling the Client about offers received
Penalties for non-compliance:
Warning order OR
Prohibition order (stops an agent acting)
and / or Fine
What is the Misrepresentation Act 1967?
Relates to misrepresentation or a false statement of fact made during PRE CONTRACTUAL ENQUIRIES by the VENDOR or AGENT which INFLUENCES a party to purchase in freehold or leasehold transactions.
Leads to a CIVIL OFFENCE (offence to another person and their rights or property) actionable by tort. Action can be limited by an Effective disclaimer (exclusion) clause
What offences can take place in the Misrepresentation Act 1967 and what are the penalties for non-compliance?
Leads to a Civil Offence (offence to another person and their rights or property) actionable by tort. Action can be limited by an EFFECTIVE DISCLAIMER (exclusion) clause
Sued for financial damages and / or contract cancelled
What is the Consumer Protection Regulations and Business Protections Regulations 2008?
Boarder non-specific consumer protection regulations which apply to the entire estate agency and lettings process.
CPR prohibit under B2C practices such as false / misleading information, hiding information, pressure on consumers and failure to show professional DD
BPR prohibit businesses from advertising products or services in a way that mislead other businesses
Maximum penalty is:
- Unlimited fine
- Prohibition order and / or
- 2 years in prision
What offences can take place in the Consumer Protection Regulations and Business Protections Regulations 2008?and what are the penalties for non-compliance?
Criminal offence - not treating customers fairly and misleading marketing information
Maximum penalty is:
- Unlimited fine
- Prohibition order and / or
- 2 years in prision
What was included in the exchange report at Romford Gasworks?
- Executive Summary
- Introduction
- Deal Summary
- Location and description
- Legal
- Planning
- S106 and CIL
- Affordable Housing
- Scheme
- Market Research
- Technical
- Build Costs
- Programme
- Health and Safety
- Financial Appraisal
- RISKS AND OPPORTUNITIES
- Recommendation
What due diligence was undertaken at Romford?
What Legal DD can be undertaken on a site?
- Title search - check title deeds clear ownership - free from encumbrances, liens and legal restrictions
- Check zoning regulations and land use restrictions
- Review contracts, leases and agreements to identify any obligations, restrictions or potential issues
- Litigation search - ongoing or past involved in the property
What is site DD?
Identify and assess potential risks and opportunities associated with a property
DD depends on:
- Type of property
- Intended use
Use consultants in professional fields to ensure a comprehensive and accurate evaluation of the site
Caveat in a bid:
- any missing info required
- subject to further DD
- conditions back on land owner
What type of DD can be undertaken on a site
- Legal
- Title search
- Litigation search
- Zoning and Land Use restrictions
- Leases, contracts and agreements review - Financial
- Valuation
- Partner
- Financial Records - Sales and Marketing
- Physical
- Site inspection - structures, maintenance, physical concerns
- Survey - boundaries - Technical - all site surveys and reports
- Highways
- Infrastructure
Utilities - confirm capacity
- Flood Risk
- Ecology
- Arbiocultural
- Ground Investigations
- ENVIROMENTAL
- ACCESS
- SUSTAINABILITY - Planning review
- Existing permissions / approvals
- Issues / challenges obtaining planning
- Local Policy - Risk Assessment
- Internal Stakeholders
What is indemnity insurance, what are some examples where it might be used and how do you decide if it is necessary?
A insurance policy purchased from a specialist legal insurer which covers any risks or property defects attached to a property.
Buyers solicitor will review title deeds, searches and replies to enquires. Any risks or faults which need protection against can purchase indemnity insurance. Can be quicker and cheaper than resolving the issue
Examples:
- Missing title deeds
- Lack of planning permission
- Restrictive covenants
- Chanelsea Repair
Need?
- Specific assessment of risks associated with the land
- Legal advice whether policy is necessary
- understand extend of coverage
What causes variation to demand for land and land values?
Economic factors
- Interest Rates
- Inflation
- Consumer Confidence (investment or development0
- Economic Growth - business growth and increased employment opportunities
- Supply and demand
- Population growth (job creation and migration)
Political factors
- Make up of councils - policies
- Land use policies and zoning regulations
- Planning and development policies e.g. Affordable housing requirements
- Government policies and incentives (tax on infrastructure)
- Environmental regulation
- Housing policies - rent control, subsidies, AH requirements
- Infrastructure investments
- Political stability and predictability
Other factors that influence demand for land?
Location
Supply and Demand
Infrastructure and development projects
Demographic Trends
Can you give me an example of working on a site bid?
I facilitate a bid at Preston Road, Brighton:
I prepared a residual appraisal
presented within bid pack
Granted permission to bid on an unconditional basis
Completed a bid proforma which set out:
- Purchasing Entity Details
- Purchase price (£7m)
- Deal Structure (uncon)
- Timescales for exchange
- Payment profile
- Offer conditions
- OVERAGE
- Funding Requirements - THIRD PARTY / PROOF OF FUNDS
- Board approval and process
- SCHEME
- BID DOCUMENT CHECK LIST
- PROFESSIONAL TEAM - SOLICITORS
- PURCHASING ENTITY
Offer conditions:
- VP
- DD on Affordable housing strategy
- Title and ACCESS to the site are clean and unencumbered
- Full existing services map across the site
- Pre-app with LA
Timescales
- Exchange - 8 weeks from agreeing HOTS
- Completion 3 months from exchange or VP
Can you give me an example where you have worked on a development agreement?
Stonepit
What is a development agreement and can you give an example of where you have worked on one?
- Covers a wide variety of different agreements between landowners, developers, purchasers and funders
- Specific legal agreements which are tailored to the agreed commercial terms and specific details of development
- I have worked on a Golden Brick development agreement which are typically used when an RP wants to purchase affordable homes from a developer
- The DA puts obligations in place on both parties to enable the delivery of the affordable homes in accordance with the contract
- Usually there is a TRANSFER OR GRANT OF PROPERTY INTEREST being developed relating to the obligation
- At stonepit, the property will be transferred to Clarion via phases when GB is reached on the last unit in each phase. Subsequently a license will be granted to carry out the works to PC
What are the key elements of a development agreement?
- Contracting Parties
- Key definitions
- Golden Brick
- Golden Brick Payments
- Completion
- Deposit
- Retention
- Handover
- LADS
- Phases
- Works Payment
- Transfer
- ERs - spec, S&M, H&S, defects procedure, handover process, GDPR Breach notification requirements
What is the definition of GB?
“Golden Brick” is a mechanism which enables a developer to complete a sale of VAT elected land to a Registered Provider (RP) before practical completion of the affordable housing dwellings and for that sale to be treated as a zero- rated supply for VAT purposes rather than a standard rated supply.
When is GB achieved?
no legislative definition of “golden Brick”
but HMRC guidance states that for golden brick to be achieved a building must be “ clearly under construction” and it is accepted that a building is being constructed when WHEN WORK HAS PROGRESSED ABOVE FOUNDATION LEVEL
In a traditional build scenario this is usually when walls begin to be constructed upon the foundations. When dealing with modern methods of construction (MMC) particular care needs to be taken to ensure that the specification of the relevant MMC product satisfies the rules to qualify for zero-rating.
What specific points did you consult internal stakeholders on to ensure the agreement left Clarion in a Contractually robust position?
Specification – DT&I review of TW spec against CHALs ERs
H&S – what updates the EA needed at monthly meetings including number of H&S reports issued, visits by HSE, Local Fire Authority, Police, reporting of RIDDOR
Sales and Marketing – show home, signage, use of sales and marketing suite, documents required for sale
Collateral Warranties – Commercial team to confirm if the provided sufficient cover for CHAL
GDPR – Legal team re breach notification requirements
What are Clarion’s Employers Requirements?
set of documents that outline the specific requirements and expectations of the client (employer) regarding the construction project. These requirements are often prepared as part of the procurement process and form part of the contract documentation.
All Housing Associations will have a set of Employer’s Requirements.
Asset information – doors / windows / roof tiles – property make up
Specification – internal fixtures, fittings
Handover process – documentation requirements, inspection, snagging and PC clause
Defects procedure – what the response time is for certain defects and timeframe
Health and Safety – reporting, monthly updates on accidents etc.
Sales and marketing – Show homes, signage, documentation to enable sale of homes
GDPR Breach notifications
How can a DA be terminated?
Within determination section of the DA - sets out the process that has to be followed
If PC has not occurred by the longstop date of the relevant phase (where extensions of time have not been exercised) then the contract could be terminated
If TW went into liquidation
What was the deal summary summary at Romford?
Land value - £17m
Deal Structure - STP basis
Metrics - GM 25% and IRR 20%
Payment Terms
- 25% Exchange
- 25% Completion
- 25% 2yrs after completion
- 25% 4yrs after completion
Berkeley Group Guarantee
Overage - planning overage in place on the PRIVATE NSA not triggered until the exchange scheme 10%< that the exchange scheme (£10/ft2)
Contract conditions
What is planning overage?
Contractual provision used in property transactions which allows the SELLER to have a SHARE in the FUTURE INCREASE IN VALUE OF PROPERTY resulting from obtain planning permission.
TRIGGER EVENT within contract when the planning overage payment will be required.
FORMULA for how planning overage will be calculated
Include a DISPUTES PROVISION and ANY DEDUCTIONS
Other types of overage?
Sales overage - uplift in payment due where developer generates more than than an agreed expected base revenue and share the uplift with the seller
What were the purchase conditions at Romford Gasworks?
St Williams Satisfactory Planning is onerous if:
Less than the private NSA set out in the exchange scheme
Planning contributions exceed £9.6m
Affordable housing is greater than 35% by hab room and more than 70% of affordable as social rent
Late stage affordable housing review
Demolition and remediation: NGP to remediate the site to Open Storage Standard and demolish two cottages on-site
Gas rationalisation and PRS acoustic works: Acoustic mitigation to the PRS to be less than 50dB, gas rationalisation
Vacant possession – small area of land leased by Cadent which is to be relocated to other land
Hazardous substance consent revocation
Gas survey condition – St William to undertaken a gas survey following Cadent works
Title condition – NGP to realised redundant rights and standardise easements widths with Cadent
How did you structure the offer letter for New Warren Farm?
Purchase price
Payment structure
Overage
Purchaser
Source of funds
Offer conditions
Offer assumptions
Approval
Payment Terms
Timescales
Solicitor details
Site proposals
What were the S106 assumptions at Newbury?
£22.5k/unit - planning consultant to review £15k/unit and any payment in excess would come off the land price
