Purchase and Sale (L3O) Flashcards
1
Q
What are the different interests that can be bought/sold?
A
- Freehold: own outright, including land it’s built on
- Long leasehold: have lease from the freeholder to use the property for a set number of years
- Lease (assigned): selling lease to a 3rd party
2
Q
What do you need to do prior to accepting an instruction?
A
- Conflict of Interest check
- Check whether competent
- Check no personal conflict of interest
- Receive signed terms of engagement & Complaints handling procedure
3
Q
What client information is required prior to accepting an instruction?
A
- Property information (what, where etc.)
- Conflict of Interest & AML checks
- Clients’ objectives
- Issue and agree Terms of Engagement
4
Q
What are the key aspects for issuing Terms of Engagement?
A
- Check the client is entitled to instruct
- Send 2 sets (one for their records)
- Sign & date before sending to client
- Any changes to Terms of Engagement must be agreed in writing
- Ensure the client has an opportunity to negotiate terms
5
Q
What must be included within Terms of Engagement?
A
- Agency basis (sole/joint)
- Agency rights (sole selling or ready, willing and able purchaser)
- Proposed fee
- Timescale for payment of fees/disbursements
- Marketing costs/disbursements
- AML requirements
- Confirmation of no conflict of interest
- Details of firms’ complaints handling procedure
6
Q
What are standards purchase/sale fees?
A
- Percentage of price (0.5% - 2%) (plus marketing costs plus VAT) - depends on size and value of asset and likely amount of time and effort required.
- Often includes minimum fees & abortive fees
- Could also be a fixed or hourly fee (more valuation)
- Can be negotiated, but make sure not de-valuing profession - should be set at a level you fee appropriate to the level of work required.
7
Q
What is a cooling off period?
A
- In accordance with current consumer protection regulation - 14 days
- If a client changes their mind and does not want to instruct an agent they can withdraw from the agreement
8
Q
What are the Red Book requirements for Agency?
A
- Set out in Red Book
- Red Book is not required for agency or brokerage work
- Red Book is required for purchase reports for acquisitions that include a valuation.
9
Q
What must be done prior to marketing a property?
A
- Prepare marketing report with full recommendations
- Obtain written approval of marketing particulars (CPRs, misrepresentations)
- Market property as agreed
10
Q
What is done after marketing commences?
A
- Conduct viewings/deal with enquiries
- Receive bids/negotiate with bidders
- Draft HoTs –> instruct solicitors
- Assist with queries & CPSEs –> issue invoice and retain file
11
Q
What are some different purchase vehicles?
A
- Special Purchase Vehicle (SPV) - company formed to buy a property with reduced SDLT
- Joint Venture - two or more investors combine resources for property development/investment
- Real Estate Investment Trust (REIT) - company tax resident in UK listed on stock exchange, at least 75% of its business is in property investment
- Offshore Unit Trusts (eg JPUT)
12
Q
What happens if a purchaser fails to complete a transaction?
A
- Vendor serves a Notice to Complete
- Purchaser given deadline to complete (often 10 days)
- If party cannot complete then landowner can rescind property and re-market… deposit is kept and costs can be claimed
- The vendor may be able to sue for damages to claim for any loss in value (and associated costs) following the sale of the property to another party at a lower sale price.
13
Q
What are some typical marketing costs?
A
- EG
- Data Room
- Photography
- Planning briefing paper
- Promap plans
14
Q
What is the difference between sole selling rights and sole agency rights?
A
Sole selling rights:
- Fee paid regardless of who finds purchaser, including client.
- Can still get fee after expiry of appointment period if introduced purchaser during period of sole selling rights contract
Sole agency:
- Fee is ONLY paid if the agent finds the purchaser during the term of instruction agreement
15
Q
What is the difference between joint agency, joint sole agency and multiple agency rights?
A
JOINT AGENCY:
- Two or more agents share fee
JOINT SOLE AGENCY:
- Two or more agents share fee with pre-agreed ratio
MULTIPLE AGENCY RIGHTS:
- Several agents instructed to sell
- Only successful agent gets fee
16
Q
What are abortive fee clauses?
A
Must include:
- a ready, willing and able purchaser (If client withdraws with ready purchaser – agent can charge fee)
- Client withdraws site from market - used if suspect client only wanted to test the market.
17
Q
What are the applications of the Estate Agents Act 1979?
A
- Freehold or leasehold with capital value
- During purchase and sale of interests in land or buildings
- Policed by Trading Standards Office - prohibition (stop agent practicing)/warning order (written order telling agent not to do it again and/or fine)
18
Q
What are the principles of the Estate Agents Act 1979?
A
- Honesty and accuracy
- Clarity on terms of agency - s18 - specify all costs
- Openness for personal interests - s21
- Absence of discrimination
- Tell clients all offers
- Agreement for liability and costs
- Keep clients’ money separate
19
Q
What are the core principles for agents in the RICS UK Commercial Real Estate Agents Professional Statement, 1st edition 2016? (don’t have to know all)
A
- Act in an honest, fair and transparent manner
- Carry out work with skill and diligence
- Ensure clear and fair ToBs with CHP
- Avoid conflicts, deal with any honestly, openly and fairly
- Do not discriminate
- Communication to be fair, clear, timely and transparent
- Advertising and marketing material to be honest and truthful
- Clients’ money to be held separately and insured
- Hold appropriate PII
- Clearly identify client and obligations
- Give realistic assessments of values, costs etc
- Ensure all meetings, viewings and inspections are in accordance with clients’ wishes
20
Q
What are the Consumer protection from Unfair Trading Regulations 2008?
A
- An agent owes a duty to consumers
- Must provide accurate material
- Must not make misdescriptions
- It can relate to all lettings, sales and online agency.
Covers:
- Lying
- Omitting
- Exerting undue pressure
- Misleading
- Hiding
- Failure to show DD
21
Q
What are CPR penalties?
A
- Unlimited fine
- Prohibition order
- Prison up to 2 years
- Policed by Local Authority’s Trading Standards Office
22
Q
What is the Business Protection from Misleading Marketing Regulations 2008?
A
- Business to business
- Mirrors CPRs
- Prohibits misleading advertising and restricts business comparison of products
23
Q
What are the punishments of Misleading Marketing Regulations 2008?
A
- Unlimited fine
- Prohibition order
24
Q
What is the Misrepresentations Act?
A
The Misrepresentations Act 1967:
- Relates to misrepresentations/false statement of fact to induce party to purchase
- Vendor and/or agent can be sued for damages and/or the contract rescinded
- Agents have a duty of care to clients and third parties to check the reliability of information
- Caveat Emptor: ‘buyer beware’ - places onus on the buyer to perform DD before making a purchase.
3 tests to decide agent’s liability:
- Foreseeability (damage is reasonably foreseeable)
- Proximity (relationship can be characterised in law as being sufficiently proximate)
- Fairness (fair, just and reasonable for such a duty of care to arise)
25
What is within the BNP Disclaimer/Important Notice?
We include this within sales particulars.
1. Marketing particulars not an offer or contract
2. Don't rely on statements as fact in these particulars
3. Purchasers must satisfy themselves by inspection or other
4. The vendors and BNP do not have the authority to give representations or warranties
26
Outline the RICS Global Professional and Standards and Guidance - Conflicts of Interest 2017
- Members must gain informed consent in writing
- Conflicts:
a. party (working on same instruction for 2 different parties)
b. own interest (personal interests)
c. confidential information (work between 2 parties that is confidential)
Informed consent can only be sought if member/firm is happy to proceed. Cannot advise/represent client unless informed consent is obtained.
27
What does the RICS Professional Statement Conflicts of Interest UK Commercial Property Investment Agency 2017 relate to?
- Specific risks identified with investment agency.
- Deals with:
a. Dual Agency - cannot act for buyer and seller
b. Multiple introductions:
Obtain written consent
Information barriers
Inform seller on appointment
c. Incremental advice:
Obtain written consent
Information barriers
d. Personal/Own interest:
Transparent
Objective
Section 21 - Estate Agents Act
28
What are the main methods of sale?
1. Private Treaty:
- Openly market with no set timescales
- Negotiate confidentially, agree HoTs, instruct solicitors
2. Informal Tender:
- Set deadline
- Can accept any offer
- Not legally binding
- Can be used during private treaty negotiations to obtain best offer
- Further negotiation/deadlines can follow
3. Formal Tender:
- Retains control and is transparent
- Supply contract and exchange when accepting offer
- Highest bid is accepted (unless vendor reserves right to refuse any or all offers)
- No opportunity for further bid
4. Auction:
- Unusual property, poor quality, distressed sale, last resort
- Exchange on fall of gave, with 10% deposit
29
What are the benefits and limitations of private treaty?
Pros:
- The parties control the process
- Flexible
- Vendor not under any obligation to sell
- Confidential
Cons:
- Potential for gazumping or more likely gazundering
- Late decisions not to buy
- Associated abortive costs
30
What are the benefits and limitations of informal tender?
Pros:
- Competitive bidding
- Set timescales
- Conditional proposals
Cons:
- Chipping
- Won't directly lead to a contract for sale
- Can receive later bids at any point
31
What are the benefits and limitations of formal tender?
Pros:
- Transparent
- Fast legal process
Cons:
- Expensive
- Limits market
- Limits flexibility
- Can't listen to late offers
- No opportunity for further bids
32
What are the benefits and limitations of auction?
Pros:
- Quick process
- Certainty of sale (assuming reaches reserve)
- Useful for unusual property which is hard to accurately value
- Competitive open bidding
Cons:
- Lack of confidentiality over price received
- Vendor cannot select purchaser
- Very much dependant on who is in the room
- Intensive nature of short marketing period
- Only unconditional offers
- May not reach reserve
33
What should be included within bidding guidelines?
- Price
- Conditions (STC)
- Solicitor
- Timelines
- Purchaser
- Financial arrangements
34
What would you do if you received a late bid?
- Report to client (Estate Agents Act 1979)
- Client can still accept
- Advise that it doesn't bode well it was late but they can still be taken into consideration
35
What % is a deposit?
- Typically 10%, but can be negotiated (depending on method of sale)
36
What are commercial property standard enquiries (CPSEs)?
Industry standard pre-contract enquiries used in commercial property transactions. Introduced in 2002 with the aim of speeding up commercial property transactions for lawyers and clients
1. General pre-contract enquiries for all
2. Supplementary of tenancies
3. New lease
4. Assignment
5. Surrender of rack rented leases
6. Supplementary residential tenancies
7. General short from pre-contract enquiries for all
37
What happens if a purchaser pulls out after exchange?
- Keep deposit
- Seek legal advice
- Sue for damages and costs incurred if resulting sale is at lower price
- Service notice to complete
38
What is a Transfer of Going Concern (TOGC)?
- If buying a business with intention to keep the same use as before. VAT not payable on the assets (purchase not treated as a supply of goods and services for VAT purposes)
39
Talk me through opting to tax
- Specialist advice always recommended for VAT
- A landowner may choose to elect a property to charge VAT, to recover VAT on costs expended.
- Some occupiers cannot register for VAT eg financial institutions, charities and medical
- Add 20% onto gross price
40
What is the purpose of heads of terms?
- Provide an executive summary
- Not legally binding
- Provide framework for contract
41
What should be included in HoTs?
- Vendor
- Vendor's agent
- Vendor's solcitor
- Purchaser
- Purchaser's solicitor
- Land address and title number
- Purchase price
- Exchange - target timeline
- Deposit
- Completion (target)
- Legal costs - each party responsible for their own
- VAT
- Vacant Possession
- Restrictions (subject to...)
- Sale Plan
42
What is the difference between a wayleave and easement?
```
Wayleave = granted to person who owns land, terminable
Easement = relates to land itself, permanent.
```
43
What are the key principles of the Bribery Act?
Bribery Act 2010 Principles:
- Proportionality
- Top level commitment
- Risk Assessment
- Due Diligence
- Communication
- Monitoring and review
44
What is an option agreement?
Option agreement - agreement between two parties, whereby developer will have the option to purchase land from the landowner, usually once planning permission has been granted.
The price of the land may be at a fixed pre-agreed sum, or it may be assessed at the date planning permission is granted as the market value, sometimes deducting the developer's costs in gaining the permission and usually a pre-agreed percentage reduction to reflect and reward the developer's efforts in gaining the planning permission in the first place.
Pros:
+ landowner will have personally chosen the developer they propose to sell their land to - legacy.
Cons:
- Not tested on open market - landowner may sell the land to developer under the option agreement for comparatively less than if they had tendered the land for sale on the open market.
- Developer will always want to pay the least for the land and the landowner will always want to achieve best price - disagreements between the two parties.
- Developer will want more control over planning, leaving landowner with little control.
45
What is a promotion agreement?
An agreement a landowner has with a promoter to promote the landowner's land through the planning process in order to gain planning permission. Once planning permission is granted, the landowner and promoter work together to market and sell the land to a developer. The price paid by the developer would then be split on a pre-agreed basis between the landowner and promoter.
+ Landowner & promoter's interests are aligned to gain best price for the land once planning granted - landowner doesn't need to worry about being short-changed at the point of sale, knowing the market will have been properly tested and best price achieved
+ Landowner may be afforded more control over planning application in a promo
46
What is a hybrid agreement?
Combine elements of promo and option agreements. Often used where landowner has extensive land holdings which may be developed over lengthy period - large urban extension sites.
47
What is a subject to planning agreement?
- Exchange on basis of gaining planning
- Would recommend if site is likely to get planning
- Quicker land receipts
48
What different ways could you handle a conflict?
RICS Professional Statement Conflict of Interest 2017:
1. Conflict avoidance - avoid if impartiality is compromised
2. Written advice - disclose COIs
3. Conflict management
49
How could you manage a conflict?
- Information barrier robust enough so no information can be passed between the parties
- 2 surveyors are ideally in separate buildings, or at least from 2 different teams
- Information can be securely stored
50
What is a conflict of interest?
Arises when a member or firm's independence and impartiality is threatened
51
What is informed consent? And what are the rules?
A form of written approval accepting the conflict and informing they would like to proceed
- Must be in writing
- Surveyors can only seek informed consent if they are satisfied relevant parties will be best served in doing so.
52
What is the purpose of Heads of Terms?
To provide an executive summary, not legally binding, provide framework for contract.
53
What did the purchaser pay for the Hartford site?
£405,301
54
How many offers did you receive for Trinity School?
8 in initial round, 4 revised offers
55
What are the regulations governing the AML checks?
* Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2019
* RICS Professional Statement Countering Bribery, Corruption, Money Laundering and Terrorist Financing (2019)
56
How do you advise what method of sale to use?
* Client’s objectives
* Market conditions
* Likely level of demand
* Timing requirements
57
What is the role of an agent after HOTs are issued?
* Ensure timescales are adhered to
| * Check funds are coming forward
58
What is an overage?
Refers to a sum of money that a vendor may be entitles to receive when completing the sale of a piece of land, providing a specified condition is satisfied e.g. grant of a new planning permission
59
Would you advise the client to always accept the highest offer?
No - depends on clients' objectives
| - If the bidders who submitted the highest offer haven't undertaken as much DD, then their offer might not be as robust.
60
What is the legal process after negotiating Heads of Terms?
- Legal searches
- Exchange (once exchanged, you are in a legally binding contract to buy the property with a fixed date for completing) - engrossed contracts at this point
- Completion (monies all paid)
*gap between exchange and completion for purchaser to get their finances in order - wouldn't want to full commit to drawing money until know it will definitely go ahead.
61
What may legal searches include?
- Local Authority Searches - to check for any planned developments or health risks
- Water authority searches - to confirm the property is connected to mains water/drain and sewer
- Environmental searches - to find out if there is any contaminated land, nearby landfill sites, floodplains or land stability issues.
- Checking title register and title plan (Land Reg docs)
62
What would you do before accepting agency instruction?
- Check competent and no COI then undertake due diligence
63
You mentioned the exchange period was delayed for Trinity School, why was this and what did you mean by it?
- The period between Heads of Terms being agreed and the contract being drafted
- Waiting for legal searches to be done, letters of reliance to come through etc.
64
You mailed the site out to developers you had on your database, how did you ensure applicants data was held in a GDPR compliant manner?
The applicant had provided consent for their detail to be left on my database
65
What is a VAT1614d?
Certificate to disapply the option to tax buildings from VAT. Using the VAT 1614D certificate means that the vendor has to sell the property to you without VAT. This can have an impact on the purchasers costs.
66
When is a property eligible for use of a VAT1614d?
- PART conversion is specifically allowed (no need for whole property to be converted):
- Intend to convert the building or part of the building mentioned above with a view to it being used as a dwelling or number of dwellings or solely for a relevant residential purpose (see paragraph 6(3)(b) of Schedule 10 to the VAT Act 1994).
67
When would you arrange the legal meetings and who would attend the meetings?
- After draft legal pack had been issued
| - Both parties and their solicitors & agent
68
In relation to Langford, if your clients were a charitable organisation, how would your advice have differed to the advice you gave them in advising them not to receive the highest offer?
- Charities Act 2011 requires charitable organisations to achieve full value - leaving a legacy behind would not be achieving full value over the other party. I would then advise highest offer.
69
How would you ensure the developer followed through with their proposed plan and left a legacy on site that was suitable to your clients objectives?
- Add it into Heads of Terms as a requirement for them to build out as per the plans of the existing planning permission.
- If purchaser would not accept, you advise it was a competitive process and they may not be able to proceed with them otherwise.
70
Why did you market the property for 6 weeks?
- Risk of frustrating applicants
71
Why would you not consider conditional offers of Station Road?
- Quick sale without complications
- Advised value could be lower for unconditional offers if prospective purchasers thought there were risks with the site that they hadn't fully explored.
72
What are capital allowances?
- Tax relief for capital expenditure for construction or purchase of commercial property
- Specialist advice required
73
What are the RICS documents relating to purchase and sale?
- RICS Global Real Estate Agency and Brokerage Professional Statement, 2016 (similar to UK specific PS set out below)
- RICS UK Commercial Estate Agency Professional Statement, 2016: Provides set of mandatory standards for RICS for members involved in agency and real estate management work. Sets out 12 core principles.
RICS implementation of legislation - trying to update and make things a bit clearer.
74
If you are a landowner, why might you opt to charge VAT?
A way of being able to recoup the VAT from input costs of that land eg getting planning permission. (can get 20% of your costs back)
75
Why may a vendor choose to accept one offer over another?
Because the purchaser is:
• A ‘known party’, e.g. an institution
• A cash buyer
• Able to complete in a shorter timeframe, e.g. board approval may not be needed
76
What would you have done if the purchaser was holding up completion?
They may serve a notice to complete
77
Who pays the legal costs of serving a Notice to Complete?
The proposed purchaser
78
What conditions may an offer be subject to?
* CONTRACT
* Building, environmental and measured surveys having been carried out
* Satisfactory due diligence having been carried out
* Board committee approval
* Proof of funds
79
What does Subject to Contract mean?
STC means the parties are still negotiating and have not yet reached a final, binding agreement
80
What are the different types of selling rights?
Sole selling – remuneration payable if purchaser not found by agent
Sole agency – only get paid if you find the purchaser. Can still get fee after expiry of appointment period
81
What are the different bases of agency?
Sole agency – only one agent
Joint sole selling – two or more agents share fee on pre-agreed basis
Multiple agency – only successful agent gets a fee
82
What are Capital Allowances?
* Tax relief for capital expenditure for construction or purchase of commercial property
* Can generate substantial tax savings / relief on value of plant and machinery fixtures – air con / lifts
* Specialist advice required
83
In what instance would a Red Book valuation be required?
• Red Book Valuation is required for purchase reports for acquisitions of property that include a valuation report
84
What is contained on a title register?
Title number, edition date
1. Property Register – describes the land in the title
2. Proprietorship Register – the class of the title, the owner, and any entries which affect disposal
3. Charges Register – any mortgages, other financial charges, notices and covenants affecting the land
Restrictive covenant – restriction on the use of land
85
Are there any particular cases in the news that feed into that lone working policy?
Suzy Lamplugh - estate agent went in late 80s in Fulham when going to an appointment with 'Mr Kipper'
86
What were the problems to delay exchange for Trinity School? How did you overcome that?
a
87
How do you have regard to the Estate Agency Act in your day to day job?
a
88
How would your advice change if you didn’t receive any interest in the property at Landbeach?
Auction
89
When would you advise that formal tender is used?
Public accountability required eg sale of government buildings
90
Could you explain what the Bribery Act is?
a
91
You’re aware you can dispose of land on a conditional or unconditional basis. What is the difference between the two?
a
92
You stated you understand different methods of sale. Can you talk me through the advantages and disadvantages of private treaty?
a
93
You noted restricted covenants and rights of way. Can you explain what both are?
a
94
Could you describe the difference between an outline and a detailed planning application?
a
95
Beach Farm, Landbeach – you mentioned it was in a protected village amenity area, can you explain what that is?
a
96
You talk about advising your client on a marketing period. You ended up with 6 weeks, how did you get to that and why was that a good recommendation?
a
97
Following successful bids, you have drafted HoTs. What is included within HoTs?
a
98
If you have a site you have marketed for offers in excess of £275k, if bids came in below that figure, how would you negotiate upward? Is there anything you could do to assist and negotiate the figure upward rather than saying it won’t sell at that price?
a
99
If you receive offers from several parties, how do you narrow down which to proceed with?
ta
100
Explain to me the auction process. When would you advise your clients to auction their site?
gaeg
101
What is a title defect?
A title defect is an aspect that is missing, or negatively affects the land.
102
What is title indemnity insurance?
A title indemnity policy also known as legal indemnity cover may be available in respect of a title defect to protect the owner of the property from loss which might arise from the defect, for example, reduction in value of the property or paying compensation or damages.
A title indemnity policy will not remedy the title defect – instead it provides financial compensation in the event of the defect causing actual loss, subject to the limit of indemnity stated on the policy. This amount is usually the value of the property in question, the amount of the mortgage being obtained, or the gross development value of a site that is to be developed.
103
When are you typically paid for a disposal?
Typically proportion (usually 10%) of fee on exchange, then remainder of completion.
104
Your client identifies a historic restrictive covenant dating back to 1924 prohibiting the site being used for anything but D1. What would you do?
Restrictive covenants last for about 66 years. But if they were still concerned, I would advise my client to obtain title indemnity insurance. This would be an insurance policy which would protect the buyer.
105
What is gazundering?
lower the amount of an offer that one has made to (the seller of a property), typically just before the exchange of contracts.
106
What is gazumping?
make a higher offer for a house than (someone whose offer has already been accepted by the seller) and thus succeed in acquiring the property.
