Purchase and Sale submission Flashcards
What are the 4 methods of sale?
Private Treaty
Informal Tender
Formal Tender
Auction
How do you choose which method to use?
Client objectives
Desired timescale
Public accountability
Current and likely future market
What is a sale by private treaty?
Parties are free to negotiate on their own time, without commitment in the open market.
It is the most popular method.
What are the pros and cons of private treaty?
Pros:
flexible
parties control the process
no obligation to sell
confidential
Cons:
potential for gazumping/gazundering
late decisions not to buy
associated abortive costs
What is informal tender?
- It’s an invitation to submit best offers by a specific deadline
- It’s a flexible sale process because allows further negotiations as the vendor is not obliged to accept the highest offer
What are pros and cons of informal tender?
Pros:
- Enhance competitions between sellers and brings negotiation to eventually an end
- Flexibility, as it allows further negotiation and allows the vendor to have more control of the sale process and timescales
- Limited upfront costs given that a informal tender can be triggered without a full legal pack
Cons:
- can be difficult to manage bids as they are not legally binding
- parties may have insufficient time to arrange lending facilities
What is requested in an email for best and final bids?
- Deadline for bids
- name of applicant
- Finance arrangement, with solicitor cover letter
- condition attached
- specify which type of offers are strongly desired
- that the vendor reserve the right to not accept the highest offer
What information goes in a legal pack?
- Title deeds: to prove ownership
- Reports on inquiries
- Leases and other tenancy agreements
- Other property information, including it fixtures and fittings
- EPC
- Contract for Sale and other documents with conditions attached (if it’s a formal tender)
Explain what is a formal tender? and roughly what it involves?
- It’s a similar process to the informal tender (so invitation to bid), however, parties must submit their offer through a prescribed form and provide the necessary deposit when placing their bid, so it becomes a legally binding process if one of the bids is formally accepted by the vendor.
- The bid is sealed and will be opened in front of the vendor together with all the others bids, and there’s no opportunity to increase the bid
What is the difference between a formal tender and an informal tender? can the vendor include some right against highest bids?
Formal tender:
- By selecting a bid, under a formal tender, the vendor can potentially enter into a binding contract; and there is no opportunity to further increase the bid once submitted;
Informal tender:
- Does not legally bind the parties to the sale until contracts are exchanged and there is an opportunity to further negotiate the bid
Both methods can reserve the right of not accepting the highest offers.
What are the pros and cons of formal tender?
Pros:
- completely transparent and accountable
Cons:
- no flexibility
- need to prepare various documentation (full marketing material and legal pack) ahead of the sale so can be costly
What is an auction? what party need to do and is it legally binding?
- It’s a public sale where the property is offered to the highest bidder.
- Parties will need to register before bidding and will be allowed to inspect the property before the auction day.
- The contracts are potentially exchanged at the fall of the hammer.
What are the actions that a seller must do before putting a property on auction?
Needs to:
- Provide legal pack
- Fix a reserve price below which the property will not be sold
- Prepare the auction particulars in line with CPR
What are the actions that an interested party must do before bidding on a property on auction?
- Arrange a 10% deposit
- Undertake an AML
What are the pros and cons of auction?
Pros:
- It’s useful to use for achieving a quick sale,
- It gives certainty that the price will only be sold if the reserve price is reached
- Useful for selling unusual properties which are difficult to value
Cons:
- Costs of promotion and publicity
- Lack of confidentiality over price achived
- Cannot choose the purchaser
What must agency instruction agreements include?
- Agency basis (sole / joint)
- Agency rights (sole selling / sole agency)
- Proposed fee
- Marketing costs & disbursements
- Confirmation of no COIs
- Money Laundering regulations requirements
- Timescale for the payment of fees and disbursements
- Details of CHP
What goes into Heads of Terms?
- Vendor
- Purchaser
- Property & Adress
- Tenure
- Purchase price
- Legal costs (each party responsible for their own ones)
- VAT details
- Timetable (exchange, completion etc)
- Conditions
- Solicitors details
What are the commercial SDLT rates?
£0 - £150k = 0%
£150 - £250k = 2%
£250k + = 5%
How do you seek proof of funds?
A written statement from the purchaser’s solicitor.
What items are typically in marketing?
EG
Data Room
Photography
Planning briefing paper
Promap plans
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
What is contained on a title register?
Title number, edition date
Property Register – describes the land in the title
Proprietorship Register – the class of the title, the owner, and any entries which affect disposal
Charges Register – any mortgages, other financial charges, notices and covenants affecting the land
Restrictive covenant – restriction on the use of land
How can fees be set up in a agency instruction?
- Fixed fee
- Percentage fee
- Tiered fee: different fees for different levels of service
- Hourly fee
- Performance fee: incentive to finalise the deal by a certain period
When does the EA Act apply?
- Applies during the sale or purchase period and applies to any:
- Disposal or acquisition of an interest in land
- Freehold property
- Leasehold property with a capital value
- land as well as buildings
What are the SEVEN key points which the Estate Agents Act 1979 promotes (CHOALK)?
The act ensures that agents act with:
- Clarity as to the terms of the agency (Section 18)
- Honesty and accuracy
- Agree in advance liability for costs
- Are Open regarding personal interest (Section 21)
- Do not act with discrimination
- Legal obligation to tell client about offers received
- Keep clients’ money separate
What typical clause would you include regarding to agency rights and fees? explain each of them?
- Sole Agency rights: fee will only be owed if the agent introduced the buyer (during contract period only)
- Sole Selling rights: fee will be owed regardless of whether the agent introduced the buyer - additionally, a fee is due after rights period ends if the purchaser/tenant was originally introduced by the agent.
- Ready able and willing purchasers’ clause: an abortive fee is due to the agent if the an applicant is ready and able to proceed with a purchase, but the client decides to withdraw
What are the 3 agency bases? Can you briefly describe them?
- Sole: exclusive rights appointed to one agent
- Joint: two agents are appointed to act together and the fee is split on a pre-agreed basis
- Multiple: more than one agent is appointed but only the agent who finds the buyer is paid a fee
Defined in EEA 1979
What must you do according to Section 18 of the Estate Agents Act 1979?
- Specify all costs/fees in advance, in writing in the Terms of Business
- Itemise all payments - no global budget is allowed
What must you do according to Section 21 of the Estate Agents Act 1979? expand?
- Disclose any personal interest - a “connected person” is someone who benefit financially from the transaction such as a relation or business associate
- Any personal interest should be declared on the ToE as a minimum and if appropriate not continue to act
What must you do according to the Estate Agents Act 1979 when you receive offers?
- Must report all offers received to the client, promptly and in writing
- Not able to misrepresent interest/offers - you can only tell the truth regarding offers received
Who polices the EA Act 1979?
Trading Standard Estate & Letting Agency Team (Operated by Pows County Council, who work closely with LA that have enforcement responsabilities)
What are the penalties for non-compliance with the Estate Agents Act 1979?
- Prohibition order to prevent the agent practicing
- Warning order gives an agent a written warning not to undertake the action again
What is a sale and lease back? and what are the benefits?
It’s transaction that involves selling a property to a buyer and then leasing it back to the buyer as the tenant. The benefits include:
- No voids and immediate cash injection given the lease starting on day 1 from the Buyer
- Improved cashflow for the new tenant which had the capital value tied up in the asset
- Potential tax benefit depending on the specifics of the transaction
What items would you include in a general ToB for agency work?
- Agency Basis (Sole/joint agency)
- Agency rights (sole selling or sole agency rights)
- Proposed fee
- Marketing costs and disbursements
- Confirmation of no conflicts
- Money laundering checks requirements
- Timescale for the payment of fees & disbursements
- Complaint Handling procedure details
What happens if a contracts are exchanged but the purchaser fails to complete? and what happens if the issue remains?
- The vendor can serve a Notice to Complete on the purchaser giving them a deadline to complete. The legal costs for this work are to be paid by the proposed purchaser.
- If the deadline passes, the vendor can rescind the contract and re-market the property and keep the deposit; in addition the vendor may be able to sue the purchaser for damages (i.e. loss in value if sold the property subsequently at a lower price)
What actions you may include as part of a property acquisition instruction?
- Check for competence and interest
- AML check
- Agree ToE
- Establish the client client’s objectives and parameters
- Consider technique to find properties (cold calling, advertising, websites etc)
- Measurement and valuation
- Check planning/use/conditions
- Due diligence checks in respect of asbestos, title, contamination, flooding, covenant strength and potential arrange for detail survey to be taken
- Check for any rent or service charge arrears
- Negotiation and instruction of solicitors
- Conditional contracts to be arranged if necessary
What are the key principles of the RICS UK Commercial Estate Agency Professional Statement (2016)?
Mandatory Professional Statement for RICS members.
Provides mandatory standards for those involved in agency work.
Has 12 core principles:
- Act in an honest, fair and transparent manner
- Ensure client’s are provided with Terms of Business
- Do upmost to avoid conflicts
- Have adequate PII
- Do not discriminate unfairly any dealings
- Also advices on key agency matters i.e. acting ethically, securing instructions, marketing, gifts etc.
What is the Misrepresentations Act (1967) about? what duty is place on the agent? and what protection measures can the agent adopt?
Summary:
Relates to the misrepresentation or a fake statement made by a party during pre-contractual inquiries.
Duties:
- Agent has a duty of care to check the advice and information given
- An agent must not give misleading information which may induce the party to purchase the property.
Disclaimers:
- Disclaimer clauses may protect the agent from information included in the marketing particulars, as long as it fair and reasonable
What are the three test regarding misrepresentation? what must a party demonstrate for successfully be compensated?
- Foreseeability (predictability of damage)
- Proximity of relationship
- Fairness (or reasonable)
The party suing must demonstrate that the other party induce them to enter into a contract through a misleading advice
What are the consequences of Misrepresentation act breaches?
- contract rescinded
- sued for damages
What are the key principles of the Consumer Protection Regs from Unfair Trading Regulations (2008)?
- offers broader, non-specific consumer Protection for estate agents agents.
relates to potential buyers and vendors - Extends the duty of care owed to all consumers, including potential clients, viewers, buyers and actual buyers
- Need to give accurate and/or necessary ‘material’ information and not make any mis-descriptions.
- Agents must declare everything known about the property (good and bad)
- Agents can’t put undue pressure on potential buyers.
- If something is discovered during the agency process it must be reported to al interested parties
- Full due diligence is required for all new instructions
What was your reasoned advice with regards to the Land in Upminster?
My reasoned advice was:
- Advised:
- an informal tender would be more suitable based on client requirement
- I advised on the guide price to be adopted and what type of buyers would be more attracted
- Advised that the third highest offer would provide best value, as the offer was made unconditionally by an established and reliable party with verified funding
What was your reasoned advice with regards to the Land acquisition in Harlow?
My reasoned advice was:
- I advised on the strategy to adopt, in which more than one land could be identified in order to reinforce our negotiation position
- Give an opinion of likely value of land
- Negotiate the acquisition on the land with one of the landowner based on terms suitable to my client
In relation to the Florence Resi sale, what was the reason for deciding to use a private treaty for the sale?
For a number of reasones:
- it would allow my client to test the market place and adjust accordingly prices, marketing, strategy etc, so more control of process and timescale
- Given the number of asses to be sold, this method allows for several negotiations to run in parallel while kept discreet and confidential
In the resi sale in Italy, what did the affordability assessment say? who prepared it?
I reviewed the affordability assessment report prepared by a registered broker which contained the salary of the interested party, likely scenario of costs (mortgage rates and other expenses) and a confirmation that the party was able to obtain a mortgage for the purchase price agreed.
With regards to the resi sale in Italy, what due diligence did you do with the respect to the potential purchaser?
A Customer Due Diligence which consisted in:
- Reservation Fee
- Obtaining purchaser details, such as name, address etc
- Proof of ID
- Proof of address, a utility bill or bank statement from the previous 3 months
-
With regards to the sale in Upminster, what due diligence did you do with respect to the purchaser?
- Legal name of the organisation
- Company registration number
- Meet with the purchaser and have evidence that the person I am dealing with has delegated authority to purchase
- Obtain purpose and nature of the transaction, to ensure is consistent with purchaser business profile
- Address of registered office
- Structure chart of ownership, directors, shareholder holding more than 25%
- any ultimate beneficial owners
In what ways are you able to find out the ultimate beneficial owner of a company?
- By making reasonable endeavors with the client
- Or by looking for the “Person of Significant Control” on Company House
If you were conducting Customer Due Diligence for a listed company on the Stock Exchange, what sort of check would you do?
I would not need to check directors or share holders, as these are publicly available in their annual return
What are the practical checks that you need to do if you are approached from a company which operates in various countries?
- Meet the potential purchaser in person
- Obtain and verify client’s identification
- check if potential purchaser is a PEP or a close associate or family member of a PEP
- Check if the potential purchaser is under relevant sanctions (through Gov Consolidated Sanction List)
- Check what other countries the company operates in to ensure these are not high-risk
- Ascertain the purpose of the transaction to ensure it’s consistent with the transaction
- Regularly monitor if the purchase goes ahead
What sort of elements did you consider when you appraised the site?
I looked at various element to understand the alternative use that could achieve best financial outcome:
- Planning: I analysed the Local Plan to understand designation of the area, site that may affect the development potential
- Physical factors: of the site, such as type of construction, size, height whether the site was on a slope or not
- Market analysis and demand: what class use was more in demand and developer appetite and competition
- Pricing through site appraisals
- Marketing strategy, based on client’s requirements and timescales
- Disposal routes, with risk and opportunities attached to each
What type of disposal routes on the Tunbridge Wells did you consider?
- Uncon Sale with Pre-App
- Uncon Sale with Planning Consent
- Conditional (STP) Sale
- Join Venture
What was your SWOT analysis in TW?
- S: Central location, and strong appetite from a number of potential purchaser, Housing Associations and BTR funds
- W: Present in conservation area, therefore limitation in development and higher construction cost to achieve required standard
- O: Potential redevelopment through permitted development rights
- T: Rising build costs and housing market
What would a typical time line for disposing Tunbridge Well and Land sale in Upminster?
- Agree ToE, marketing particulars and price
- Pre-Marketing: collate info re site, commission any survey required and upload the info into a bespoke data room
- Marketing period: Data room goes live, contact the targeted parties, undertake viewings, populate the database with parties that visit the dataroom, provide regular udates, invite interested parties to submit offer
- Evaluation: evaluate bids, AML checks, Interview selected party, provide recommendation to the client
- Agreement and monitoring: Issue HoTs and instruct solicitor, review legal docs and assist solicitors through the entire period
What should an offer for an informal tender contain?
- Purchase Price
- Source of funding and cover letter from the solicitor
- Track record of their business and developments
- Any terms and conditions attached to the offer
What Local Plan is adopted in TW?
It’s formed by Local Plan (2006), Core Strategy (2010) and Site Allocations Local Plan (2016)
What uses were included in the TW appraisal scenarios? Did you slect one in particular?
Various scenarios which included uses such as residential, retail and office space; However the one selected consisted of :
- 75% Resi
- 15% Retail
- 10% Office
What is a connected person under the Estate Agents Act (1979)?
Someone who could benefit financially from the transaction, such as a family member or a business associate
What are the penalties for breaching the Consumer Protection from Unfair Trading Regulations (2008)? and who is it policed by?
It consist in a criminal offence:
- Unlimited fine
- Prohibition Order
- Up to 2 years in prison.
- Policed by Local Authority
What is the difference between CPR and Misrepresentation Act? and give me examples?
Both regulations offer protections to consumers, but COR have a broader scope and cover a wide range of unfair trading practices, while the Mis Act specifically addresses false statements made during the sale process
Examples:
Mis Act: a false statement that says that the property has certain features and induces a buyer to purchase the property/ fail to disclose building defect.
CPR: Agent use high-pressure tactics to try and force a buyer to sign a contract / Unfair contract terms
Name an example of disclaimers that can be used for protecting agents from claims?
- The particulars are set indicative and do not constitute part of, an offer or contract
- All info included in the particulars are believed to be correct but any interested party should not rely on them and must undertake their own investigations
- None of the utilities have been tested and cannot give warranty to their operations or efficiency
- We have not made any enquiries to the LPA, therefore prospective buyers should rely on their own due diligence
What information should be included into brochures? and what regs this need to be comply with?
- Property description
- Property address
- Property price
- Floor plans
- Photographs
- EPC
- Tenure: frehold/leasehold
- Local amenities
The info provided must be accurate, fair and transparent and statement are based n reasonable grounds (not misleading).
What governs marketing signage?
The Town and Country Planning (Control of Advertisement) Regulations 2007
How many boards are allowed for commercial properties and how long after this must be removed?
Only 1 board allowed for commercial properties.
Must remove signs 14 days after completion.
What is the maximum size for agent signage? and what is the maximum height and projection they can erected?
Non-residential boards under:
2sqm (flat)
2.3sqm (v-board)
Residential boards under:
0.5sqm (flat)
0.6sqm (v-board)
- Must not project more than 1 mt from the face of the building & not above 4.6 mt from ground in a safe condition
When is planning permission needed for marketing signage?
If it’s above the allowed sizing
Illuminated boards
Remote boards
Boards on listed buildings & in conservation areas
What happens after the HoTs are agreed?
The surveyor needs to support the client and solicitor in completing the sale:
- Assist the solicitor with title investigation
- Assist the solicitors with all Commercial Property Standard Enquiries (CPSEs)
- An indemnity policy may need to be granted
- Transfer deed
- Establish Exchange and completion date
- Registration and SDLT
