Purchase and Sale Flashcards
What are the 4 main methods of sale?
- Private Treaty
- Formal Tender
- Informal Tender
- Auction
What is the private treaty method?
- Parties free to negotiate in their own time
- Not open market
What are the advantages of Private treaty?
What are the disadvantages of private treaty?
Advantages:
- Flexibility
- Parties control the process
- No obligation to sell
- Confidential
Disadvantages:
- potential for gazumping
- Late decisions not to buy
- Associated abortive costs
What is the Informal Tender method?
- used when there is good interest in the property
- agent invites parties to submit ‘best and final’ offer or bid with prescribed timescale
What is included in a best and final bids letter?
- date and time for receipt of written offer
- name/address of solicitor
- finance arrangements
- conditions attached to the offer
- no variable offers considered
- reserve the right not to accept any offer made
What are the advantages/disadvantages of an informal Tender?
Advantage:
- vendor under no obligation to accept an offer
- known time period
- allows for further negotiation
Disadvantage:
- Not legally binding so either party can withdraw up until contract.
- doesn’t lead to contract for sale
What is the formal Tender method?
- often used by statutory bodies with high level of public accountability.
- full marketing material including legal pack must be provided in advance of process
- applicants bid blindly
- usually no immediate exchange of contracts
What are the advantages/disadvantages of Formal Tender?
Advantages:
- Can speed up the process to exchange contracts
- vendor can be under no obligation to sell if stated
Disadvantages:
- No opportunity for further bids
What is the Auction method?
The auction method provides a transparent market place where buyers bid against each other.
The highest bidder buys the property.
The buyer has to complete the purchase on stated completion date.
What is a title?
It documents your proof of ownership
What are capital allowances?
Capital allowances that taxpayers write-off cost of certain capital expenditure against taxable income.
You can claim capital allowances when you buy assets that you keep to use in your business such as, plant and machinery.
You can deduct some or all of the value of the item from your profits before you pay tax.
What is stamp duty land tax (SDLT)?
If one buys a property or land over a certain price, one must pay SDLT.
For non-residential properties – over £150,000
Up to £150,000 – Zero SDLT
£150,001-£250,000 – 2% SDLT
Above £250,000 – 5% SDLT
What are the advantages/disadvantages of the auction method of sale?
Advantages:
– Able to dispose of property quickly
– Certainty of sale
– Space for useful for sale of unusual property which are hard to value accurately
– Good to generate strong level of interest
Disadvantages:
– Cost of promotion
–Lack of confidentiality
– Intense nature of short marketing period
What is capital gains tax?
Capital gains tax is a tax on the profit when you sell something that’s increased in value since purchase.
What must agency instruction agreements clearly set out?
– Agency basis (sole/joint agency)
– Agency rights ( sole selling or soul agency rights )
– Proposed fee
– Marketing costs and disbursements
– Confirmation of no conflicts
– Money laundering regulation requirements
– Timescale for payment of fees and disbursements
– Details of complaints handling procedure
Terms of engagement must be signed and returned before marketing can commence.
What are sole selling rights?
Sole selling rights:
It means a fee will be payable when contracts are exchanged even if the purchaser is not found by the agent.
It means a fee will be payable if the property is sold to a purchaser who was introduced by the agent during period of sole selling rights.
What is a ‘ready able and willing purchaser’ clause?
It is when an applicant is ready and able to proceed with the purchase but the client withdraws and an abortive fee may be charged by the agent.
What are the types/bases of estate agency?
Sole agency: one agent
Joint agency: two or more agents sharing a pre agreed fee.
Multiple agency: any number of agents – only successful agent gets fee
Tell me about the timeline and what the process of a sales instruction includes?
Instructions Competence/independence Terms of engagement Receive signed agreement Money-laundering checks Gather information Due diligence VAT position Inspect/measure Market research Valuation Marketing report Approval of marketing particulars Marketing campaign Negotiation of sale, HOTs – instruct lawyers CPSEs Assist lawyers Issue invoice on completion
What are the core principles of the RICS UK commercial estate agency professional statement, 2016?
12 core principles!!!
- HONESTY, fairness, transparency and professionalism
- Due SKILL, care and diligence
- TERMS OF BUSINESS - fair and clear with CHP
- Avoid CONFLICTS – Deal with them openly and fairly
- Don’t DISCRIMINATE unfairly
- Client COMMUNICATION - fair, decent, clear, timely and transparent
- MARKETING/ADVERTISING – honest/truthful
- CLIENT MONEY – held separately with adequate insurance
- Hold appropriate PII
- IDENTITY OF CLIENT – ensure all parties are clear of obligations
- REALISTIC ASSESSMENTS -use market evidence/best professional judgement
- MEETINGS - are as per clients wishes - Ensure security and personal safety
What are the key points of the estate agents act 1979?
Seven key points!!!
- TERMS of agency (section 18)
- HONESTY and accuracy
- COSTS - Agreement and liability
- PERSONAL INTERESTS (section 21)
- Absence of DISCRIMINATION
- Inform client about OFFERS received
- CLIENTS MONEY held securely
What are the most important points in the estate agents act 1979?
Section 18:
Clear terms of agency/business – specify all costs/fees in advance.
Section 21:
Disclosure of personal interests – a connected person who could benefit financially from the transaction.
What does the estate agents act 1979 apply to?
Disposal/acquisition of interest in land.
Freehold property
Leasehold property with a capital value
Land
Who polices the estate agents act 1979?
Trading standards office of the local authority
What are the penalties for non-compliance with the estate agents act 1979?
Warning order
Prohibition order
and/or a fine
What is meant by a cooling off period?
This allows clients who no longer wish to instruct an agent to change their minds within 14 days of agreement of terms of business.
What could you typically expect to find on a data site?
Data sites provide all necessary and relevant information with regards to a property being sold.
Typically this is organised in a number of subfolders including:
Title documents - Title deed/lease plan
Property management documents
Lease documents - Leases/license for alterations
Survey documents - Asbestos/building surveys
Other/miscellaneous - tenancy schedule/Argus file
What are capital allowances?
They are a form of tax relief upon capital expenditure for construction/purchase of commercial property or business assets.
They can generate tax savings/relief on plant and machinery such as lifts and air-conditioning.
Allowances can be offset against taxable profit.
I always advise times to seek specialist advice
What would you have regard to when disposing of a freehold or new lease over seven years?
Land registration act, 2002
Must now be registered the Land registry, along with a LRCLP.
What would you expect to find on a land registry compliant lease plan?
- Drawn to metric scale – 1:100 or 2:200
- Northpoint
- Scale location plan – 1:1250
- Demise line in red – internal wall
- Address in full
- Scale measurement bar
- Scale noted on plan
How would you decide which of sale to use?
Choose the most appropriate method of sale I would consider:
- The clients objectives
- Public accountability of the client
- Market conditions – current and future
- Likely level of demand
- Timing
Why would you recommend the private treaty method of sale?
It is flexible
There is no obligation for the Vendor to sell
It is confidential
No time constraint
No commitment to open market
What would you consider are the disadvantages of the private treaty method?
Potential for gazumping
Late decision by purchaser not to buy
Abortive costs
What are the advantages of the informal tender method of sale?
It is not binding prior to contract
It can be used to obtain a best offer
Vendor normally under no obligation to except highest or any offer
What are the disadvantages of an informal tender?
No guarantee of sale – not binding until contract
What are the advantages of a formal tender?
Speeds up the process to exchange contracts
Vendor can state under no obligation to sell
Comprehensive – Useful method for bodies with high level of public accountability.
Are there any disadvantages of a formal tender?
No opportunity for further bids
Might not be able to achieve as higher bid as with an informal tender.
What are the advantages of the auction method of sale?
It’s quick – short timetable for disposal
Certainty of sale
Useful for hard to value properties
Useful for properties which will generate high level of interest
What are the disadvantages of the auction method of sale?
Cost of promotion/advertising
Lack of confidentiality
Intense nature of short marketing period
What are CPSEs?
Commercial Property Standard Enquiries
Can you tell me what the different CPSEs are?
CPSE1 – general enquiries
Supplemental
CPSE2 – commercial tenancies
CPSE3 – grant of a lease
CPSE4 – assignment
Why must you receive signed terms of instruction before proceeding?
In accordance with s.18 of the estate agents act 1979.
What must you do prior to publishing marketing material?
Obtain written approval of the marketing material from the Vendor.
Under the consumer protection regulations, 2008 and the misrepresentations act, 1967.
Can you tell me some typical forms of purchase vehicles?
Joint ventures
REITS– Real estate investment trusts
SPV – special purchase vehicle
What are purchases costs?
These are the likely costs incurred when purchasing a property.
This includes stamp duty - 0/2/5%
Agents fees - 1%
Legal fees - 0.5%
What determines how much stamp duty one pays?
Up to £150,000 – nil
From £150,000-£250,000 – 2%
Over £250,000 – 5%
How is stamp duty charged?
On an incremental basis
What is a WAULT?
Weighted average unexpired lease term.
How is the WAULT calculated?
It is calculated by multiplying the percentage waiting of rent by the term remaining on each lease.
What is a party wall?
A wall which sits on the Boundry of land belonging to 2 or more owners.
Always recommend client seeks specialist advice.
What are rights of light?
This is where the party enjoys on interrupted enjoyment of light.
It arises after 20 years of uninterrupted enjoyment without consent of an easement.
What is the definition of freehold?
What is the definition of leasehold?
Absolute and permanent tenure.
Leasehold is a wasting asset
What is an agency instruction agreement?
This sets out the basis of agency.
What impact might a sale and lease back have on purchasers costs?
If the sale is not being treated as a transfer of going concern (TOGC), then the purchaser might have to pay VAT on the Stamp Duty.
What is a triple net yield?
This is the yield of a property net of rental guarantees or top ups.
What do you diligence do you undertake prior to selling a building?
Valuation due diligence
Marketing due diligence
Statutory due diligence
Building specific due diligence