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APC Revision 2023 > Purchase and Sale (Level 1) > Flashcards

Purchase and Sale (Level 1) Flashcards

1
Q

What does the Estate Agents Act (1979) apply to and what is its’ purpose?

A
  • Applies to any disposal or acquisition of an interest in land or buildings
  • Purpose is to make sure you act in the best interests of your clients and that both buyers and sellers are treated honestly, fairly and promptly
  • Key obligation is to declare if you have any personal interest in a transaction
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2
Q

What are the 7 principles of the Estate Agents Act (1979)?

A

7 principles of the act:

  1. Clarity on terms of engagement
  2. Honesty and accuracy when describing a property
  3. Agreement and liability for costs
  4. Openness regardless of whether it is a personal transaction
  5. Absence of discrimination
  6. Pass on all offers to clients in writing
  7. Keep client money separate
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3
Q

What does S18 of the Estate Agents Act (1979) refer to?

A

S18 – clarity on terms of engagement

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4
Q

What does S21 of the Estate Agents Act (1979) refer to?

A

S21 – openness in regard to personal interest and connected parties

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5
Q

What is the penalty for breaching the Estate Agents Act (1979)?

A

A breach of the estate agents is ban of working as an estate agent – if they ignore the ban they can be prosecuted and fined

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6
Q

What does the RICS UK Commercial Real Estate Agency Standards (2016) set out and who does it apply to?

A
  • This statement outlines the principles that shape the culture of fairness and transparency that underpin all activities undertaken by real estate agents within whichever country of practice
  • Applies to all RICS members involved with the sale, letting, leasing and management of real estate, whatever the form of tenure by which it is held or occupied
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7
Q

What are the 12 obligations of members set out in the RICS UK Commercial Real Estate Agency Standards (2016)?

A

Sets out that members must:

  1. Conduct business in an honest, fair, transparent and professional manner
  2. Carry out work with due skill, care and diligence and ensure that staff employed have the necessary skills to carry out their tasks
  3. Ensure that clients are provided with terms of engagement which are fair and clear – these should meet all legal requirements, codes of practice and include a complaints handling procedure
  4. Do the utmost to avoid conflicts of interest and if they do arise deal with them openly, fairly and promptly
  5. Not discriminate unfairly in any dealings
  6. In all dealings with clients ensure that all communications are fair, clear, timely and transparent
  7. Ensure that all advertising and marketing is honest, decent and truthful
  8. Ensure that all client money is held separately from other monies in designated accounts covered by adequate insurance
  9. Have adequate and appropriate professional indemnity insurance that complies with RICS Rules of Conduct
  10. Ensure that is made clear to all parties the scope of your obligations to each party
  11. Where included in your service, give a realistic assessment of the likely selling, buying or rental price, associated cost of occupancy and financial outcome of any issues using best professional judgement
  12. Ensure that all meetings, inspections and viewings are carried out in accordance with the client’s lawful and reasonable wishes, having due regard for the security and personal safety
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8
Q

What is the RICS ‘purple book’ formally known as?

A

RICS Commercial Real Estate Agency Standards (2016)

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9
Q

What does the RICS Professional Statement UK Residential Estate Agency (2017) set out? And what is it also known as?

A
  • Also known as the ‘blue book’
  • Sets out clearly the responsibilities of residential property agents to ensure they are working to the highest ethical and professional standards

It sets out the same 12 members obligations as listed in the ‘purple’ book

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10
Q

What is the purpose of the Misrepresentation Act (1967)?

A

The purpose of the misrepresentation act is to provide a greater amount of security to parties that enter into a contractual agreement, to ensure that they are not tied to an agreement, or suffer loss, as a result of a misrepresentation

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11
Q

What other legislation must you comply with and consider when acting in a commercial/residential transaction?

A
  • Bribery Act (2010)
  • Equality Act (2010)
  • Estate Agents Act (1979)
  • Consumer Protection from Unfair Trading Regulations 2008 (when dealing with consumers)
  • Business Protection from Misleading Marketing Regulations 2008 (when dealing with businesses)
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12
Q

What are the four methods of sale?

A
  1. Auction
  2. Informal Tender
  3. Formal Tender
  4. Private Treaty
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13
Q

When is auction used as a method of sale and when are the terms of engagement agreed?

A
  • Sometimes called ‘method of last resort’
  • Used when it is difficult to assess the open market value
  • Terms of engagement are agreed between the seller and auctioneer in advance of the auction
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14
Q

When is Informal Tender used as a method of sale?

A
  • Also known as sealed bids
  • Used when there is good market demand or where negotiations need to be ended after a period of marketing via private treaty
  • Might be used for a sensitive site, competing developers for land, when advising a local authority and price is not the only consideration
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15
Q

When is Formal Tender used as a method of sale?

A
  • Formal tender is used where there is strong demand for a property or public accountability is required e.g public land
  • Tender pack should include full marketing material, a legal pack and requirements for the contents of written bids
  • Applicants bid blindly with no opportunity for amendments
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16
Q

When is private treaty used as a method of sale?

A
  • Most common method of sale
  • When a property is marketed openly with the use of marketing particulars
  • Offers the potential purchaser the opportunity to ‘treat’ with the seller
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17
Q

Advantages and disadvantages of auction?

A

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
  • It is not a confidential process
  • The marketing period is likely to be short
  • A failure to sell might lead to the property becoming ‘blighted’
  • There is little control over the identity of the purchaser
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18
Q

Advantages and disadvantages of informal tender?

A

Advantages:

  • Set timescales can be achieved
  • More control over the purchaser inviting a select group of parties
  • The process is not legally binding so either party can withdraw until the point of exchange, vendor not obliged to sell

Disadvantages:

  • Marketing costs and agency fees can be expensive
  • Legal and financial arrangements are different dependent on the purchaser
  • The process is not legally binding so either party can withdraw until the point of exchange (late withdrawals)
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19
Q

Advantages and disadvantages of formal tender?

A

Advantages:

  • Set timescales can be achieved
  • More control over the purchaser inviting a select group of parties
  • Applicants bid blindly and there is no opportunity to withdraw or alter bids after they are submitted

Disadvantages:

  • Marketing costs and agency fees can be expensive
  • Can be a time-consuming process
  • Can be a lot of red tape especially if going through a public sale process
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20
Q

Advantages and disadvantages of private treaty?

A

Advantages:

  • Flexibility - the parties can negotiate in their own time and without commitment in the open market
  • Advertising can be tailored to suit the client’s requirements
  • It is relatively inexpensive
  • The seller is not obliged to sell
  • It is a confidential process

Disadvantages:

  • There is the potential for gazumping or gazundering, both of which are unethical practices by RICS
  • There may be the risk of late withdrawals and associated abortive costs
  • The quoting price could be under or over stated, requiring prudent advice on offers put forward or offers considered
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21
Q

What are the stages in the legal process for a completed sale?

A
  1. Acceptance of the offer – must issues formal acceptance of the offer in writing to the buyer outlining the conditions of the sale (if not already agreed)
  2. Due diligence – if not already undertaken dependent on the method of sale (may already be undertaken in formal, informal tender and auction)
    • this may involve verification and inspection of the
      purchasing party
    • Additional surveys carried out by the purchasing party and
      further review of technical documentation
  3. Proof of Funds – providing some form of proof of funds for the sale
  4. Legal Contract – negotiating the legal contract for the sale, pulling together deeds of ownership and relevant title plans in
  5. Signing and Exchange of Contracts
  6. Completion
    • Money is transferred
    • Legal documents to transfer ownership are completed
    • Vacant possession of the property passed over
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22
Q

How do exchange and completion work in an auction transaction?

A

The due diligence, funding arrangements and contract of sale are normally agreed and undertaken prior to the auction taking place

Exchange
- When the hammer falls on a property auction, the exchange
of contract between the seller and buyer of the property
becomes legally binding
- From this point, the buyer is committed to the purchase; the
seller committed to the sale

Completion - Completion usually takes place within 28 days from the auction

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23
Q

What will the legal pack from an auction contain?

A

The auction legal pack for the property being sold will contain:

  • Register of Title
  • Land registry and local searches
  • Special conditions of sale
  • Property information
  • Leasehold agreements
  • Planning permissions
  • Any replies to pre-contract enquiries
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24
Q

How does Section 18 of the Estate Agents Act (1979) relate to your agency practice?

A

s18 of the Estate Agents Act (1979) sets out the requirement to give the client written particulars of the circumstances in which the client would be liable to pay an agent for their work

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25
Q

How does Section 21 of the Estate Agents Act (1979) relate to your agency practice?

A

S21 of the Estate Agents Act (1979) sets out that what personal interests in a property transaction must be declared before engaging in estate agency work

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26
Q

What are the four agency bases?

A
  1. Sole Agency
  2. Sole Selling/Letting Rights Agency
  3. Joint Sole Agency
  4. Multiple Agency
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27
Q

What is sole agency?

A

Sole Agency

  • where a single agent is appointed to market a property for sale/let
  • the agent will only be entitled to its fee if it introduces, or (if the contract permits) has negotiations with, the eventual buyer while the agent’s agreement is in force
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28
Q

What is Sole Selling Rights Agency?

A

Sole Selling Rights Agency

  • where a single agent is appointed to market a property for sale/let
  • That estate agent will be entitled to its fee if there is any disposal of the property regardless of who found the buyer or had negotiations with them
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29
Q

What is Joint Agency?

A

Joint Agency

  • where two (or more) agents are appointed to market a property for sale/let
  • the agents agree to split the fee between them if one of them sells the property
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30
Q

What is multiple agency?

A

Multiple Agency

  • where multiple agents (more than 2) are appointed to market a property for sale/let
  • the fee is only paid to the agent who sells the property
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31
Q

Where are the different bases of agency defined?

A

Defined in RICS Professional Statement UK Residential Real Estate Agency (2017) – the ‘blue book’

32
Q

What is a ready, willing and able purchaser?

A

Ready, willing and able purchaser - A purchaser who is prepared and is able to (exchange unconditional contracts for the purchase of your property)

33
Q

What is ‘Gazumping’?

A

Gazumping - refers to the process whereby a vendor (seller) accepts a verbal offer from a prospective purchaser (buyer) of a property and then accepts a higher offer from another buyer. The first buyer is said to be Gazumped

34
Q

What is ‘Gazundering’?

A

Gazundering - is a practice whereby a buyer lowers their offer at the last minute, just before contracts are exchanged. Sellers, conscious of the fact refusing the new lower offer could mean they are back at square one and an entire chain falling apart, often feel forced to accept.

35
Q

What 3 things do you need to make a contract?

A
  1. Offer
  2. Acceptance
  3. Consideration - something of value was promised in exchange
36
Q

Can a verbal contract be legally binding?

A

Yes – if you can prove that the offer, acceptance and consideration were present

37
Q

What should Heads of Terms include and are they legally binding?

A

Heads of Terms should set out the key terms of a purchase agreement including:

  • Price – rent or purchase prices
  • Length of lease (if applicable)
  • Terms that the purchase is subject to e.g planning, result of
    survey
  • Demise, red line boundary of the property being purchases
  • Planning Use

Heads of Terms are not legally binding

38
Q

What is capacity in relation to contract law?

A

“capacity” denotes a person’s ability to satisfy the elements required for someone to enter binding contracts
e.g minimum age and of a sound mind

39
Q

Does the sale of land have to be in writing and what Act defines this point?

A

The sale of land must be in writing

It is set out in the Law of Property Act (1989), for a sale of land to be valid it must be:
- In writing
- Contain terms agreed by parties in one document
- Be signed by both parties

40
Q

What are the key points of the Consumer Protection from Unfair Trading Regulations (2008)?

A

Consumer Protection from Unfair Trading Regulations (2008)

  • Protects consumers from unfair or misleading trading practices and bans misleading omissions and aggressive sales tactics
  • Ensures there is an obligation to trade fairly and honestly with consumers
41
Q

What are the key points of the Business Protection from Misleading Marketing Regulations (2008)?

A

Business Protection from Misleading Marketing Regulations (2008)

  • Prohibits misleading business-to-business advertising and imposes further restrictions on how businesses compare their products to rival products from other companies
  • Prohibits comparative advertising
42
Q

What is average consumer information?

A

Under Consumer Protection from Unfair Trading Regulations (2008)

Average consumer information = information which the average consumer needs, according to the context, to make an informed transactional decision

43
Q

What is average material information?

A

Under Consumer Protection from Unfair Trading Regulations (2008)

Material information = information that the consumer needs to make an informed transactional decision and generally any information required to be given by law.

44
Q

What are considered to be unfair practices under Consumer Protection from Unfair Trading Regulations (2008)?

A

Banned practices include:

  • false endorsements
  • misleading availability
  • misleading context
  • aggressive sales
  • unreasonable demands
45
Q

How does the Misrepresentation Act 1967 relate to your agency practice?

A

Misrepresentation Act 1967

The purpose of the misrepresentation act is to provide a greater amount of security to parties that enter into a contractual agreement, to ensure that they are not tied to an agreement, or suffer loss, as a result of a misrepresentation

46
Q

What does the Unfair Contract Terms Act 1977 set out?

A

Unfair Contract Terms Act (1977) - regulates contracts by limiting the extent to which one party can avoid liability through use of exclusion clauses such as disclaimers

47
Q

Tell me three key issues raised in the RICS Real Estate Agency and Brokerage Standards / RICS Commercial Real Estate Agency (Purple Book).

A
  1. General Duty of Care as an Agent
    • duty of care exists throughout the period of your
      instruction
    • includes exercising reasonable care and skill in advising on
      an appropriate asking price or rent for the property
  2. Dealing with Conflicts of Interest
    • You must make every attempt to avoid any conflict of
      interest that might not be in the best interest of the buyer
      or seller you are acting for
    • You must disclose any interest in the property promptly
      and in writing
  3. Vulnerable Customers
    • You must ensure that you do not discriminate against
      vulnerable customers
    • Vulnerability can include anything that may have an impact
      on a person’s ability to make a sound and reasoned
      decision.
48
Q

Tell me about a factor which drives property markets

A

Demand
Supply
Availability of finance
Wider economic conditions

49
Q

Tell me about supply and demand in a property market you are familiar with?

A

UK Student Accommodation

Demand

  • Continued strong demand domestically – record number of 18 year olds
  • Increased preference for PBSA rather than HMOs
  • Strong international demand – UK still seen as a very high
    standard of education – Nigeria and India are growing markets with China still leading the way
  • Occupancy remains high

Supply

  • Still a student to bed ratio of 1.8 on average across UK market
  • Existing stock that needs to be replaced
  • Certain markets Durham, Newcastle, Bristol, Exeter have massive undersupply
50
Q

Tell me about government incentives which impact demand in relation to your purchase & sale work

A

Help to Buy Scheme

  • Had a massive influence on housing demand in UK
  • House prices rose significantly as properties became affordable with additional funding
  • Didn’t necessarily increase supply and house builders still land banking
51
Q

What are current SDLT levels for commercial property?

A

SDLT Rates for Non-Residential Property

  • Up to £150,000 = Zero rate of SDLT
  • The next £100,000 (portion from £150,001-£250,000) = 2%
  • The portion above £250,000 = 5%
52
Q

What are current SDLT levels for residential property?

A
  • Up to £250,000 = zero rate sdlt
  • The next £675,000 (the portion from £250,001 to £925,000) = 5%
  • Next £575,000 (the portion from £925,001 to £1.5 million) = 10%
  • The remaining amount (the portion above £1.5 million) = 12%
53
Q

What is SDLT?

A

SDLT = stamp duty land tax which is payable on property or land

54
Q

What is a cooling off period?

A

14 day period following the signing of terms of engagement for the sale of a property where the seller can change their mind with no abortive costs

55
Q

What are the different types of interest in land?

A
  • Freehold
  • Leasehold
  • Joint Ownership
56
Q

Where are interests in land defined?

A

Land Registration Act (2002)

57
Q

What does it mean granting a lease outside of the Landlord and Tenant Act 1954?

A
  • If the lease is outside the Act, the lease ends automatically at the expiry of the contractual term
  • The tenant will have no right to remain in the property and will have to negotiate a new lease with the landlord if you wish to stay
58
Q

What does it mean granting a lease inside of the Landlord and Tenant Act 1954?

A

If the lease is inside the act…

  • That means the lease automatically continues at the end of the contractual term unless terminated by the process set out in the Act.
  • As a tenant you can decide to end the lease if you wish or apply for a new one. The landlord can only oppose granting you a renewal lease on limited grounds and you will have a legal right to a new lease provided that you are occupying the property for business purposes at the time, you are not in material breach of any of your lease obligations, and the landlord does not want the property back either for its own occupation or to redevelop it
59
Q

What are profits a prendre?

A

A profit a prendre is a right to take something from another person’s land. This could be part of the land itself, such as peat; something growing on it, such as timber or grass (which can be taken by the grazing of animals); or wildlife killed on it

60
Q

What are rent charges?

A

A rent charge is an annual sum paid by a freehold homeowner to a third party who normally has no other interest in the property

61
Q

What legislation relates to rent charges?

A

Rent Charges Act (1977)
An Act to prohibit the creation, and provide for the extinguishment, apportionment and redemption, of certain rent charges

62
Q

What are the implications if a rentcharge is not paid in full?

A

If a rentcharge is not paid the owner of the charge is entitled to charge interest on outstanding rent and at worst, take possession of the property for non-payment,

63
Q

What is an option agreement?

A
  • an option agreement, when used for development, is a way for landowners to realise an increase in land value without footing the substantial cost of obtaining planning permission
  • a contract between the owner of a property and a potential buyer, giving the buyer the right to serve notice upon the seller to sell the property either at an agreed price or at its market value
64
Q

What is an example of an equitable interest in land?

A

An equitable interest is an “interest held by virtue of an equitable title or claimed on equitable grounds”
e.g the interest held by a trust beneficiary”

65
Q

What is an example of a legal interest in land?

A

A legal interest is a legal right over land which is effectively a complete, permanent and absolute form of ownership.
e.g a legal easement is a legal right of way over someone else’s land

66
Q

When does the land registry have to be notified of a transaction?

A

When the exchange of contracts has been completed

67
Q

Why would you use online marketing for a purchase/sale transaction?

A
  • Quick to use
  • Reach a wider audience than physical marketing
  • Lower cost
68
Q

Why would you use a marketing board for a purchase/sale transaction?

A
  • Demarcate the location of the property
  • Eye catching
  • Natural audience with footfall
69
Q

Tell me about an information pack you have prepared for a
purchase/sale transaction - Freehold Disposal, PBSA Portfolio

A
  • Prepared marketing brochure for disposal of PBSA portfolio sale

Marketing brochure included the following
- Property description
- Location and Access to Public Transport
- Overview of student market
- Schedule of Accommodation
- Rental Values
- Rental growth
- Leasing velocity
- Photos

70
Q

What are CPSEs and how are they involved in the sale process?

A

CPSE – Commercial Property Standard Enquiries - These are a comprehensive set of enquiries which help a buyer to understand the property and the interest that it is acquiring

71
Q

What is a Memorandum of Sale?

A

Memorandum of Sale - a written confirmation of the essential details of a property transaction

It will include;
- Buyer and seller details
- Price
- Deposit
- Conditions of sale
- Land registry number

72
Q

Explain what you understand by the planning use classes.

A

All buildings fall under a use class as per the Town and Country Planning (Use Classes) Order 1987 – applies to UK!

  • Use Class E (as amended) was introduced on 1st September 2020 – Commercial, business and service – CONVENIENCE STORE
  • Use Class B2 – General Industrial
  • Use Class B8 – Storage and Distribution
  • Use Class C3 – Residential (dwelling house)
  • Sui Generis – Student accommodation and hot food takeaway
73
Q

When were the planning use classes last amended and what changes were made?

A

The Town and Country Planning (Use Classes) (Amendment) (England) Regulations 2020

  • Effective 1st September 2020
  • Removal of Use Classes; A, B1, D1
  • Introduction of Use Class E - encompasses commercial, business and service
  • Introduction of Use Class F1 and F2 - apply to learning and non-residential institutions and local community use
74
Q

Why are POA listings unlawful?

A

POA Listings = Price on Application
POA masks the asking price of a property in advertisements, both online and in estate agents’ windows

75
Q

What key changes were introduced in respect of this competency by the Charities Act 2022?

A

Charities Act (2022)

Made it a requirement for any charity looking to dispose of land to seek advice in relation to the proposed disposal from a suitably qualified surveyor

76
Q

What is the difference between Consumer Protection Regulations (2008) and Misrepresentation Act (1967)?

A
  • breach of Misrepresentation is a Civil offence and CPR is criminal
  • Misrepresentation relates to pre-contractual enquiries whereas CPRs is throughout the entire process

APC Revision 2023 (34 decks)

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