Purchase and Sale Flashcards
What are the different methods of purchase and sale?
”* Private Treaty - Parties free to negotiate in their own time without commitment
Pros - Flexible, Parties control the process, No obligation to sell, Confidential
Cons - Potential for gazumping, Late decision to not buy have associated abortive costs
- Informal Tender (best bids) - Marketing for a finite period before best bids are called, used when there is good interest or to bring proceedings to a close.
Agents invite best and final bids, can accept late bids, a bid letter includes: - Required date and time of offer
- Applicants solicitors
- Source of funds
- Conditions
- Price
- Details of party
- Formal Tender (sealed bids) - Used by statutory bodies for land sale, public contracts etc. provides high level of public accountability
- Control and transparency over marketing period, full legal pack required
- Bids opened in front of client or independent witness
- No opportunity to re-bid
- Can lead to immediate exchange of contracts
Venor under no obligation to sell with informal / formal tender
- Auction - ToE, Conflits, AML, DD all done prior to auction date. Legal pack and reserve price agreed with vendor. When the hammer falls it’s a binding contract.
Pros - Short timescale, Certainty of sale, Strong level of interest, Transparent, Good way to sell unusual properties hard to value
Cons - Higher fees c.2.5%, Lack of confidentiality, Vendor can’t choose purchaser, Short / intensive marketing period, Failure to sell can blight the property “
What are the differences between formal and informal tender?
“Informal Tender - (Best Bids)
* Can be used during private treaty negotiations to obtain best offer
* Further negotiations can follow on from outcome
* Usually less onerous, terms / conditions prepared
* Doesn’t lead to a direct contract for sale
* Sometimes used as a negotiation tactic to invite all parties to bid
* Vendors usually state they are under no obligation or accept highest or any offer received
Formal Tender - (Sealed Bids)
* High level of accountability
* Detailed terms prepared and published in advance of bids
* No opportunity to further bid / change bid
* All bids opened in front of client or independent witness
* Vendors will select preferred bidder and proceed to contract (unless vendor reserves right to refuse any or all offers)
”
What is the most common method of sale?
“Depends on type of market
- Industrial informal tender (strong market)
- Office / retail private treaty (more challenging market)”
What is a typical timeline for a disposal instruction?
“1. Receive instruction from client
2. CCT (competence, conflict, ToE)
3. Money laundering checks
4. Gather info and undertake due diligence (get lease, planning docs etc and check if any material may be detrimental to the sale)
5. Check VAT position of vendor - TOGC Status (A transfer of a business as a going concern) no VAT payable
6. Inspect and measure
7. Undertake valuation (not Red Book)
8. Marketing - Prepare report, Obtain written approval, Undertake campaign
9. Negotiate sale, draft HOts, instruct lawyer
10. Liaise with vendors lawyers - CPSEs (Commercial Property Standard Enquiries)
11. Issue invoice, Retain file
“
Method of a property disposal?
”- Initial appointment:
o Receive instructions / pitch
o Check competence and independence
o Issue agency instruction agreement – signed by client (s18 Estate Agents Act 1979)
o Complete and record money laundering checks (Money Laundering Regulations 2017)
- Due diligence
o Gather information
o Undertake due diligence
o Check VAT position of the vendor
o Inspect and measure the property
o Research market and gather comparable evidence
o Undertake valuation of freehold interest – not Red Book Global
o Prepare a marketing report to the client
o Obtain written approval of the marketing particulars - Marketing
o Undertake agreed marketing campaign
o Inspections & interest schedule - Negotiations
o Invitation to offer – call for bids
o 2nd round of bids if required
o Further inspections with parties if required
o Enter into heads of terms negotiations
o When these agreed are under offer
o Instruct lawyers
o Liaise with the vendor’s lawyer in respect of CPSEs
CPSEs = Commercial Property Standard Enquiries –
o Negotiate SPA – this includes tax issues
o Assist with any queries during legal formalities - Exchange contracts
- Completion
o Issue invoice upon completion of the transaction and retain file
“
What is a typical timeline for an acquisition?
“1. CCT
2. Money laundering check
3. Understand client objectives
4. Techniques to find property (e.g. cold calling / websites)
5. Inspect, Measure, Valuation
6. Check planning use
7. Undertake due diligence (factors which could impact value or marketability e.g. asbestos, contamination, title, tenant covenant)
8. Negotiation and instruction of solicitors
9. Conditional contracts agreed (e.g. achieving planning consent or vacant possession)”
“Method of property acquisition:
“
”- Initial appointment
o Conflict check, AML, competence
o Terms of engagement – either exclusive or non-exclusive basis
- Pre-bid
o Discuss investment criteria and preferences
o Introduce opportunities
o Review information from brochures or off-market
o Financial analysis and due diligence – DCF
o Establish initial bid level with the client
o Ensure no conflicts with other team members
o Instruct professional teams eg lawyers - Bid and negotiation
o If on the market submit in time frame for bids, or approach if formal treaty
o May be invited to second/ best and final bids
o Carry out any further detailed due diligence
o Preferred party selected – will be notified
o Heads of terms negotiated and agreed - Under offer and completion
o Continue any further due diligence whilst SPA drafted
o SPA negotiated
o Surveys, review titles,
o Legal and tax enquiries
o Arrange debt
o Exchange contracts
o Completion when full funds transferred
“
What are the different types of purchase vehicles?
”* Special Purchase Vehicle (SPV) - Company formed specifically to buy property to reduce stamp duty
* Jersey Property Unit Trust (JPUTs) - Offshore unit trust
* Real Estate Investment Trusts (REITs) - a company with UK tax resident, on the stock exchange with at least 75% of its business in property investment
* Joint venture between two parties”
What is included in a typical agency instruction?
“Requirement for the RICS Rule of Conduct & the Estate Agents Act 1979
- Agency basis / rights
- Fees / costs
- Conflict check
- Money laundering
- Timescale for payment of fee
- Details of complaints handling procedure
- Agreement signed and returned to agent before marketing commences
”
What are the different basis of agency? (SJM)
“Sole agency - only one agent (only get paid if you find purchaser, can still get fee after expiry of appointment period)
Joint sole selling - shared fee (fee payable if purchaser not found by agent)
Multiple agency - only successful agency gets the fee”
What is a ‘ready and willing purchasers clause’ and is it included?
“It is defined in the EAA 1979
When an application is ready and able to proceed with a purchase but the client withdraws an abortive fee may be charged to agent “
What is included in a Head of Terms agreement for a transaction?
”* Date
* Subject to contract
* Vendor/purchaser
* Both agents/solicitors details
* Price
* Funding/cash
* Any conditions – measured survey, board approval, who pays costs
* VAT / Capital allowances
* Timescales
“
Conditions on HoTs?
“Subject to contract
Subject to approval by investment committee”
Money Laundering, Terrorist Financing and Transfer of Funds (information to the payer) Regulations (2017)
“The MLR 2017 sets out the additional obligations of private sector firms working in areas of higher money laundering risk. They aim to stop criminals using professional services to launder money by requiring professionals to take a risk-based approach. Firms must put measures in place to identify their clients and monitor how they use their services.
- Requirement to have a written money laundering and terrorist financing risk assessment
- Implement systems, policies, controls and procedures to address money laundering and terrorist financing risks and meet the requirements under the MLR 2017
- Adopt appropriate internal controls
- Provide training to staff
- Comply with new customer due diligence, enhanced due diligence and simplified due diligence requirements
- Comply with requirements relating to politically exposed persons
- Make sure your record keeping and data protection systems, policies and procedures meet the requirements of the regulations
- AML checks must be inplace to confirm the identity of the proposed purchaser of a property and check the purchaser’s source of funds by the vendor’s agent before contracts are exchanged
- Include additional high risk factors when assessing the need for enhanced due diligence and seek additional information and monitoring certain cases eg transactions between third countries
“
What are your Anti Money Laundering obligations and how do you adhere to them?
“AML
Upload all details to to bait
ToE signed
Need details names etc
Compliance lead by Adrian Fourth
Legal headed by Gather Hord
Plus guidance on sharepoint
paper trail and “
