Purchase and Sale Flashcards
1
Q
What are the 4 main methods of sale?
A
- Private Treaty
- Formal Tender
- Informal Tender
- Auction
2
Q
What is the private treaty method?
A
- Parties free to negotiate in their own time
- Not open market
3
Q
What are the advantages of Private treaty?
What are the disadvantages of private treaty?
A
Advantages:
- Flexibility
- Parties control the process
- No obligation to sell
- Confidential
Disadvantages:
- potential for gazumping
- Late decisions not to buy
- Associated abortive costs
4
Q
What is the Informal Tender method?
A
- used when there is good interest in the property
- agent invites parties to submit ‘best and final’ offer or bid with prescribed timescale
5
Q
What is included in a best and final bids letter?
A
- 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
6
Q
What are the advantages/disadvantages of an informal Tender?
A
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
7
Q
What is the formal Tender method?
A
- 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
8
Q
What are the advantages/disadvantages of Formal Tender?
A
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
9
Q
What is the Auction method?
A
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.
10
Q
What is a title?
A
It documents your proof of ownership
11
Q
What are capital allowances?
A
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.
11
Q
What is stamp duty land tax (SDLT)?
A
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
13
Q
What are the advantages/disadvantages of the auction method of sale?
A
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
13
Q
What is capital gains tax?
A
Capital gains tax is a tax on the profit when you sell something that’s increased in value since purchase.
14
Q
What must agency instruction agreements clearly set out?
A
– 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.
15
Q
What are sole selling rights?
A
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.
16
Q
What is a ‘ready able and willing purchaser’ clause?
A
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.
17
Q
What are the types/bases of estate agency?
A
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
18
Q
Tell me about the timeline and what the process of a sales instruction includes?
A
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
19
Q
What are the core principles of the RICS UK commercial estate agency professional statement, 2016?
12 core principles!!!
A
- 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
21
Q
What are the key points of the estate agents act 1979?
Seven key points!!!
A
- 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
22
Q
What are the most important points in the estate agents act 1979?
A
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.
23
Q
What does the estate agents act 1979 apply to?
A
Disposal/acquisition of interest in land.
Freehold property
Leasehold property with a capital value
Land
24
Q
Who polices the estate agents act 1979?
A
Trading standards office of the local authority
25
What are the penalties for non-compliance with the estate agents act 1979?
Warning order
Prohibition order
and/or a fine
26
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.
27
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
28
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
29
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.
30
What would you expect to find on a land registry compliant lease plan?
1. Drawn to metric scale – 1:100 or 2:200
2. Northpoint
3. Scale location plan – 1:1250
4. Demise line in red – internal wall
5. Address in full
6. Scale measurement bar
7. Scale noted on plan
31
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
32
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
33
What would you consider are the disadvantages of the private treaty method?
Potential for gazumping
Late decision by purchaser not to buy
Abortive costs
34
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
35
What are the disadvantages of an informal tender?
No guarantee of sale – not binding until contract
36
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.
37
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.
38
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
39
What are the disadvantages of the auction method of sale?
Cost of promotion/advertising
Lack of confidentiality
Intense nature of short marketing period
40
What are CPSEs?
Commercial Property Standard Enquiries
41
Can you tell me what the different CPSEs are?
CPSE1 – general enquiries
Supplemental
CPSE2 – commercial tenancies
CPSE3 – grant of a lease
CPSE4 – assignment
42
Why must you receive signed terms of instruction before proceeding?
In accordance with s.18 of the estate agents act 1979.
43
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.
44
Can you tell me some typical forms of purchase vehicles?
Joint ventures
REITS– Real estate investment trusts
SPV – special purchase vehicle
45
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%
46
What determines how much stamp duty one pays?
Up to £150,000 – nil
From £150,000-£250,000 – 2%
Over £250,000 – 5%
47
How is stamp duty charged?
On an incremental basis
48
What is a WAULT?
Weighted average unexpired lease term.
49
How is the WAULT calculated?
It is calculated by multiplying the percentage waiting of rent by the term remaining on each lease.
50
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.
51
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.
52
What is the definition of freehold?
What is the definition of leasehold?
Absolute and permanent tenure.
Leasehold is a wasting asset
53
What is an agency instruction agreement?
This sets out the basis of agency.
54
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.
55
What is a triple net yield?
This is the yield of a property net of rental guarantees or top ups.
56
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
57
What is valuation due diligence?
This would include gathering comparable evidence of rental values and yields.
58
What is marketing due diligence?
This would be with regards to working out who is going to buy the property.
59
What is statutory due diligence?
This is with reference to legislation and would include:
```
Asbestos
EPC
Fire safety
Health and safety
Equality act
```
60
What is building specific due diligence?
This would include:
- Details on title and tenure
- Leases
- Licenses for alterations
- Building survey
- Environmental survey
61
What are the major lease terms which affect value?
Lease length/time certain
Break clause
Alienation clause
Repairing obligations
User clause
Security of tenure provisions
62
What is included in heads of terms?
```
Property
Vendor details
Purchaser details
Solicitors details
Agents details
Price
VAT
Conditions
Deposit
Source of funding
Timescale
Legal Costs
Confidentiality
Exclusivity
```
63
When does the misrepresentation act apply?
During the pre-contractual enquiries stage.
64
When does the estate agents act apply?
During the entire agency process.
65
When does the consumer protection regulations apply?
Throughout the entire agency process.
66
What companies cannot register for VAT?
Charities
Financial institutions
Medical practitioners
67
Why would a landlord choose to elect property?
In order to be able to recover VAT on costs expended.
68
What is an agency instruction agreement?
This is the terms of engagement when selling a property.
69
What must an agency instruction agreement set out?
```
Agency basis
Agency rights
Fee
Marketing costs/disbursements
Confirmation of no conflicts
Money laundering requirements
Timescale for payment of fees/disbursements
Details of complaints handling procedure
```
70
What is the difference between freehold and leasehold?
Freehold is an interest in land into perpetuity.
Leasehold is an interest in land for a set period of time.
71
What are the main methods of sale?
Private treaty
Formal tender
Informal tender
Auction
72
What are the benefits of the private treaty method?
Parties control the process
Parties are free to negotiate in their own time
It provides flexibility
No obligation to sell
Confidential
73
What are the disadvantages of the private treaty method?
No certainty of sale
Potential for gazumping/gazundering
No obligation to sell
74
What are the advantages of an informal tender?
Allows for further negotiation
Can be used to obtain best offers
Vendor under no obligation to sell
75
What are the disadvantages of informal tender?
Not legally binding – parties can pull out any time until completion
Does not lead to direct contract for sale
76
What are the advantages of a formal tender method?
Can speed up the process to exchange of contracts
Possible to lead direct to contract for of sale
Vendor can reserve the right not to accept the highest bid
77
What are the disadvantages of the formal tender method?
No opportunity for a further bid or negotiation
Lack of flexibility
78
What are the advantages of an auction method of sale?
Certainty of sale
A good option for properties that are hard to accurately value
Quick process
79
What are the disadvantages of the auction method of sale?
Cost of promotion
Lack of confidentiality
Intense short marketing period
80
What are the differences between the formal and informal tender methods of sale?
Formal – only one chance to bid
Informal – further bids/negotiation possible
Formal – highest bid normally accepted
Informal – no obligation to accept highest/any offer
Formal – can lead to direct contract for sale
Informal – will not lead to direct contract for sale
Formal – detailed TandCs agreed in advance
Informal – less onerous TandCs agreed
81
Give me 10 key factors that have an impact on value?
```
Location
Investor demand
Supply
Lease terms
Covenant information
Market conditions
Condition of the property
Planning status
Local transport and infrastructure
Size and use
```
82
Give me six factors that have an impact on value?
Location
Investor demand and supply
Market conditions
Lease terms
Covenant information
Condition of the property
83
(Follow-up question to factors impacting on value)
How might key factors be assessed differently?
Depending on the clients objectives, key factors impacting on value may be assessed differently.
For example an investor seeking a property with potential for vacant possession will be less interested in lease terms and covenant information.
84
On your Hatton Garden example, how did you advise your client on asset management initiatives?
In order to add value to the investment, I advised my client on a number of different initiatives including a strategy for reletting the floors which had potential to become vacant and potential refurbishment works.
85
On your Hatton Garden example, what advice did you give on your strategy for reletting the vacant units?
I advised my clients on a number of different points including the ERVs for the vacant units and the necessary works that would need to be done in order to maximise the rents. I also advised the client on market conditions and the approach they should take in order to reduce letting voids.
86
On your Hatton Garden example, what was the importance of advising your client about the new crossrail station at Faringdon?
It was important to make the client aware of the proximity of the new crossrail station as it is going to be the most significant piece of new infrastructure in London for some time. The proximity of the station to the subject property was a massive plus as it would mean a vast improvement on travel times to and from the location. When considering key factors impacting value, I felt that when crossrail opens it would certainly improve the location and nearby available transport links which would have a positive impact on value.
87
(Follow-up question on giving advice to a client on value when purchasing/selling a property)
How did you ensure your advice was accurate?
I had careful regard to relevant comparable information and made sure to confirm and verify all data which I compiled.
88
Having placed the property under offer how would you assist the solicitors through to completion?
Having placed a property under offer I would make sure to maintain regular contact with my client and their solicitor in order to ensure that the legals progress in a timely manner in order to keep within the agreed timescales. I would also ensure that everything agreed to in the heads of terms is being adhered to.
I would also help where possible with any enquiries that the solicitor or my client may have.
89
What do you include in your terms of engagement when you take on an instruction?
Basis of agency and Agency rights
Fees plus any costs and disbursements including timescales for payment
Confirmation of no conflicts of interest
Money laundering regulations requirements
Provide details of complaints handling procedure
Normally include a ‘ready able and willing purchaser’ clause.
Information on PII
90
What did you have regard to when inspecting Tooks Court? (Or any property)
When inspecting the property I would first have regard to the immediate area, for example its location, local amenities and public transport.
I would then undertake the external inspection of the property, considering such things as the condition of the property, access arrangements, and confirming the site boundaries.
Finally I would undertake the internal inspection, taking note of things such as the specification, the state of repair and any defects, as well as the layout and flexibility of the space.
91
When making recommendations on value to your client on Tooks Court (or any property), what did you consider?
When assessing the value of the property I took into consideration key factors that might have an impact on value such as:
```
– Location
– Condition of the property
– Investor demand
– Market conditions
– Planning status
– Lease terms and covenant information
```
92
What disposal method did you advise the client to use on Tooks Court and why?
I advised my client that the most prudent method of sale would be an informal tender method as I felt there would be a good level of interest in the property and also that this method could not only enable us to achieve some competitive offers but also provide the opportunity for further negotiation if needed.
93
On your Tookes court example why did you undertake a first and second round of bids?
Having received the initial bids there were a good number of offers which were at a reasonable level. We felt that due to the number of offers received and the evident interest we could invite those parties for a second round of bids to try and achieve a more competitive offer.
We realised there was a risk in doing this and advised our client of this risk however they instructed us to proceed with the second round of bids.
94
What is included in the heads of terms for a sale/purchase of a property?
```
Property address
Date
Subject to contract
The parties
The price to be paid
Costs
Timescales
VAT position
Any conditions of sale
Details of solicitors
Details of agents
```
95
When analysing your comparable occupational data, how did you decide which was the most relevant?
When analysing my comparable data I would have regard to the hierarchy of evidence.
That is to say that I would order the comparable information with regard to its relevance as a comparable.
The typical order would be:
```
– new leases
– Lease renewals
– rent reviews
– third-party determinations
– sale and leasebacks
```
96
On your Great Turnstile example, how did you reflect the potential for an additional floor when advising your client of the achievable pricing?
I ran a residual appraisal which reflected the potential for an additional floor. Within the appraisal I showed that the development would be postponed for the length of the lease and applied a higher exit yield to reflect the risk and uncertainty of this.
97
Why did you instruct a third-party measurement for Great Turnstile rather than doing it yourself?
I advised my client that instructing a third-party measurement would be the most cost-effective approach and would also allow me to concentrate on preparing the marketing material and marketing strategy for the sale of the property.
98
Can you please run me through the cash flows that you ran for your client on Great Turnstile?
As we had chosen the formal tender method to sell the property it meant there was only one round of bids and no option for further negotiation. When inviting parties to bid I made it clear that my client was under no obligation to accept the highest offer. This enabled us to establish which of the proposals would put my client in the best position taking account of their objectives. I ran cash flows for each of the bids which all varied not only on the bid but also on the conditions of the sale and leaseback. My cash flows set out the income and expenditure over the term of the lease discounting it back and a figure I derived from my client which was the return they could achieve if the money was invested elsewhere. I was then able to advise which of the bids put them in the most favourable position.
99
What are sole Agency rights?
Sole agency rights:
Fee is only due if the agent introduces the purchaser within the term of instruction agreed.
100
Where must personal interests be shown as a minimum?
Within the marketing particulars and in heads of terms.
101
When you receive an offer, how must this be dealt with?
When receiving an offer I always make sure to report it to my client promptly and in writing.
102
Who polices the estate agents act 1979?
The Trading Standards Office
(local authority
103
Can you tell me about Consumer Protection Regulations 2008?
The Consumer Protection Regulations updated the Property Misdescriptions Act.
They impose much broader requirements for consumer protection and extend the duty of care to potential clients, viewers and buyers.
They aim to prohibit unfair business and ensure no misdescriptions.
104
Who polices the Consumer Protection Regulations?
The Trading Standards Office.
| Local Authority
105
What are the penalties for a breach of the Consumer Protection Regulations?
Prohibition order
Unlimited fine
Prison (up to 2 years)
Compensation to complainant (up to £25,000)
106
What are the key points of the Consumer Protection Regulations?
1) Applies to all lettings and sales
2) Agents duty of care to clients and interested parties
3) Agent must declare all knowledge of property
4) Agent must not exert undue pressure
5) New information discovered must be passed on.
6) Omissions equals breach
7) Full due diligence required
107
What most property particulars include?
A disclaimer clause
An EPC rating
108
Tell me about the Misrepresentation Act 1967?
The Misrepresentation Act relates to false statements made during pre-contractual enquiries which leads to purchase. It is a form of negligence and a civil offence only. It can lead to an agent being sued for damages or having their contract rescinded.
109
What is an agents duty of care under the Misrepresentation Act?
To check that advice and information provided is reliable.
110
How can an agent/vendor be protected against misrepresentation?
With an affective disclaimer clause.
111
What is the leading caselaw on misrepresentation?
Hedley Byrne VS Heller
This refers to liability under negligent statements and created the tests of reasonableness?
112
How would you establish if someone was negligent for miss representation?
I would have regard to the case law set out in Hedley Byrne VS Heller, which sets out the tests of reasonableness.
3 Tests
- Foreseeability
- Proximity
- Fairness
113
What does caveat emptor mean?
Let the buyer beware.
States the buyer should satisfy itself on all matters relating to the property.
114
Is there any legislation which governs the use of marking signage?
The Town and Country Planning Regulations
115
Do you need planning consent for a letting board?
If larger than 2 m (when flat)
If larger than 2.3 m (V board)
If illuminated
If on a listed building or in a conservation area
116
Is there a height restriction for letting boards?
Letting boards must not be above 4.6 m from ground level.
117
How far can a letting board project from a building?
A maximum of 1 m
118
When must a letting board be removed?
14 days after the transaction.
119
Who polices the use of letting boards?
Local Planning Authority
120
What are the penalties if a board is in breach of planning restrictions?
LPA can:
Remove the board
Issue a fine
121
Why would you advise a client to opt their property for tax?
To enable them to recover VAT on costs expended.
i.e. refurbishment
122
What are AML checks and when would you implement them?
AML stands for Anti Money Laundering.
I undertake these checks whenever I take on a new instruction.
123
Are you aware of any legislation relating to money laundering?
Money laundering, terrorist financing and transfer of funds regulations cover 2017.
This replaced the previous regulations and came into effect in June 2017.
124
1. Did you write a purchase report?
| 2. If you had written a purchase report would this have to be read book?
1. No I didn’t.
| 2. Yes it would.
125
What is in the contents of heads of terms?
```
Purchaser
Purchase price (Consideration)
Property
Tenure
Tenancy
VAT
Funding
Conditions
Timetable
Deposit
Solicitors details
```
126
How did you calculate the value of your example on Great Turnstile?
I effectively used the term and reversion investment method, calculating the value of the income stream of the leaseback as the term and undertaking a residual valuation for the reversion reflecting the development potential of the property which would be deferred for the length of the leaseback. I then added the two together.
127
Why did you do a residual valuation on Great Turnstile?
I undertook a residual valuation the reflect the development potential of the property.
128
What other method of valuation could you have used for Great Turnstile?
I could have undertaken a DCF.
I did use this as a crosscheck however.
129
You mention that the leaseback would only be for five years, how did you reflect this in your valuation?
To value the leaseback, I simply valued the income stream for the term of the leaseback discounting it back at an appropriate rate.
130
What is a TR1 form?
I believe this is the form that is used to transfer the registers title of a property from one party to another.
131
What are the prime yields for city offices?
4-4.25%
132
What are the prime yields for West End offices?
3.5%
133
What are prime yields for major regional city offices?
4.75%
134
What are yields for out of town offices?
5% and up
135
What are prime yields for industrial warehouses?
4-4.25%
136
What are secondary yields for industrial warehouses?
5%
137
What are prime yields for retail in London?
2-4% +
138
What are yields for out-of-town retail?
4.5%+
139
What are yields for secondary retail?
6-10% +
140
Give me an example of some conditions of sale?
Subject to:
Contract
Satisfactory due diligence
Survey
Vacant possession
141
What are prime yields for shopping centres?
4.5-8%
142
What are secondary yields for shopping centres?
9.5%
