Purchase & Sale

Question 1

What is a freehold interest?

Answer 1

Title absolute. Owner owns land indefinitely until wants to dispose and unrestrained except by statue/covenant/conservation area/listing.

Question 2

What is a leasehold interest?

Answer 2

Lease with landlord/tenant relationship; wasting asset; possible rent liability; lease governs what can/can’t be done.

Question 3

How does age affect value?

Answer 3

Older buildings = closer to obsolescence and likely higher maintenance cost.

Question 4

How does location affect value?

Answer 4

Location = proximity to workforce/customers (and prominence/exposure), plus transport links (esp logistics). More of these factors = more valuable.

Question 5

How does condition affect value?

Answer 5

Poor conditions requires capex to bring to useable condition (useable definition depends on occupier).

Question 6

How does the unexpired term of a leasehold interest affect value?`

Answer 6

Wasting asset. 75+ years unexpired valued as FH in practice?

Question 7

How does covenant strength affect value?

Answer 7

Security of income = less risky investment and therefore more valuable.

Question 8

What is private treaty? What are it’s merits?

Answer 8

Property marketed, any party able to enter into negotiations with seller. No commitment until exchange of contract, so governed by the parties and very flexible.

Question 9

What is informal tender? What are its merits?

Answer 9

Deadline set for offers on a property – vendor chooses if to accept one and then goes into the legal process. Vendor can choose not to accept any offer, and no binding agreement after until exchange of contracts. Often used to bring private treaty to a close.

Question 10

What is formal tender? What are its merits?

Answer 10

Deadline is set for offers/terms on a property with full legal pack etc provided beforehand. Can sometimes lead to binding contract immediately upon acceptance. Often used by local authorities etc. to ensure accountability and transparency. Tenders often opened in front of witness (solicitor).

Question 11

What is an auction? What are its merits?

Answer 11

Property is sold with parties competing directly. Gavel falling leads to binding contract, full pack available prior. Sometimes quick method of sale, reasonable certainty of selling if reserve is realistic. Not all buyers like auctions, plus seller has no control once reserve met.

Question 12

What are the Consumer Protection from Unfair Trading Regs?

Answer 12

Replaced Property Misdescriptions Act 1991. Duty of care to clients, potential clients, buyers, potential buyers to give accurate and required information. No important omissions.

Question 13

What is the EAA 1979?

Answer 13

Legislation to treat all buyers/sellers fairly, honestly and promptly. 7 key principles: clear TOE, honestly & accuracy, agreement of liability for costs, disclosure of personal interest, no discrimination, legal obligation to inform clients of offers in writing, client money kept separate.

Question 14

What are the Town and Country Planning (Control of Advertisements) Regulations?

Answer 14

Limits what signage can be erected w/o planning. 2m flat board / 2.3m V board. Max height 4.6m, max projection 1m. One board per building. Our boards – 5x4 (1.86m).

Question 15

What does the RICS PS UK Commercial Real Estate Agency say?

Answer 15

Known as purple book. Duty of care top obtain best result for client within legal and ethical boundaries. Best practice guidance. Eg – If no inspection, all parties made aware. EPC commissioned prior to marketing, absolute max 28 days.

Question 16

What did your Terms of Engagement for Hammond Avenue say?

Answer 16

Details of property, details of agency basis, fee liability and triggers for payment, scope of work, CHP, AML requirement.

Question 17

What did you look for on your inspection at Hammond Avenue?

Answer 17

Other local occupiers, access, road infrastructure, site cover, condition/repair, height, loading access, office content.

Question 18

What was in your marketing report?

Answer 18

Overview of the property, overview of the local market and requirements, valuation.

Question 19

How did you negotiate a mutually acceptable purchase price at Hammond Avenue?

Answer 19

Gap between quoting price and initial offer. Discussed comparables and market with interested party, they discussed why they reduced from purchase price (cost of roof). Agreed mutual figure and excluded roof from survey liability.

Question 20

How did you report the offers on Hazel Grove to your client?

Answer 20

Why did you report in writing? Reported figures, each party, proof of funding and timing. Reported in writing as per EAA 1979 and purple book.

Question 21

Why is best and final offers and effective way to bring matters to a close?

Answer 21

Informal tender. Multiple parties all at similar figure – offer one chance to make final can lead to an increased offer and creates a sense of competition.

Question 22

Why did you confirm that your client was not bound to accept any of the offers?

Answer 22

How does this differ from another method of sale? Auction – client obliged to accept best offer if reserve met. Clarity to protect our client.

Question 23

What was your criteria for recommending acceptance of one of the offers at Hazel Grove?

Answer 23

Combination of timing, price and funding.

Question 24

What was in your memorandum of sale?

Answer 24

Subject to contract. Details of parties, their solicitors, property, purchase price, interest, timing and any conditions.

Question 25

How had the single storey mill fallen into disrepair?

Answer 25

Lack of maintenance and potential foundation/movement issues.

Question 26

Why were the units difficult to let at Spur Mill?

Answer 26

Large units with poor loading and small yard space. Lots of repair issues during term. Low height compared to modern industrial units.

Question 27

What was in the document outlining the developer’s credibility for Spur Mill?

Answer 27

Other schemes that they had purchased/developed with details of agent/solicitor for references if required. Confirmation of their price, funding, DD to date and further DD required

Question 28

What was your opinion of market value for Spur Mill? How did you arrive at this figure?

Answer 28

Comparables and investment (assume a rent, defer for period required to let) to cross check.

Question 29

Why did the transaction in Failsworth fall through?

Answer 29

Party had second thoughts due to standard of repair.

Question 30

Why did you recommend a different marketing strategy for Failsworth? What were the positives and negatives for your client?

Answer 30

No rates liability as not empty for 6 months yet. Letting and then selling speculative but good demand in the market so low risk. Roadside profile = wider market as could attract trade users and under 500m2 so could benefit from PD to B8.

Question 31

How could the high headline rent have appeared to investors?

Answer 31

Could have appeared overrented so they might have considered a hardcore and topslice approach, might have considered more risky if tenant could not afford a high rent.

Question 32

Why were you jointly instructed to remarket?

Answer 32

Work on this estate/for this client had always been joint. Teamworking.

Question 33

What was the gross yield?

Answer 33

10%

Question 34

What was the net initial yield?

Answer 34

Purchase price = £325,000 so SDLT £5,750. Legals = 0.6% inc VAT = £1950. NIY = 9.7% (cap val £59.73psf)

Question 35

What are usual yields in that sector?

Answer 35

Poor quality industrial – c.9%? Carrs = c.9.5%

Question 36

What are the penalties for non compliance with the Misrepresentation Act 1967?

Answer 36

TBC

Question 37

What is overage?

Answer 37

A way of securing additional payment as part of a transaction, if certain circumstances are met

Question 38

Give an example of when overage might be appropriate.

Answer 38

Land with development potential - low purchase price with top up certain to conditions. Allows developer to take calculated risk.

Question 39

What are common overage triggers?

Answer 39

Grant of planning permission, sale of newly built units, further disposal of property.

Question 40

What would you seek if advising a buyer on overage?

Answer 40

Have time period where overage is permitted.

Question 41

How would you calculate an overage payment?

Answer 41

% of uplift in value of land due to planning consent? % of the sale of each unit?