Purchase & Sale Flashcards
what is private treaty?
- This is where parties are free to negotiate terms without commitment to the open market
- It is a private matter
- Most popular method of sale in the UK
What are the benefits of Private Treaty?
- Flexible process with the parties having control
- The vendor is under no obligation to sell
- It is confidential
Are there any drawbacks to Private Treaty?
- No commitment to buy so a potential buyer can pull out at any time
- Associated abortive costs
- Potential for Gazumping or Gazundering ( more common at the moment due price changes in the current market)
what are the typical practices associated with a formal bids process?
- A full legal DD pack provided ahead of bids
- Letter sent to bidders setting out the information required
- No opportunity to change the bid
- Vendor typically retains the right to refuse any or all offers
- Exchange of contract will take place upon the basis of the terms & conditions set out in the DD pack.
What are the differences between formal and informal tender?
- Formal is one round of bids only
- Further neogtiations can happen with informal but not formal
- Typically with formal, the highest bid is accepted whereas with informal the vendor reserves the right to choose
- Informal tender does not lead to a direct contract for sale
What are the benefits of Formal tender?
- Guaranteed sale / removes the risk of last minute abortion
- Greater public accountability
- Takes away the risk of Gazundering
why might someone use an auction?
- Speed of sale
- Certainty of sale (assuming the reserve price is met)
- Useful to sell unusual properties which are difficult to value
- Can be good for properties where there is good levels of interest
What disadvantages are associated with Auctions?
- Costly process
- lack of confidentiality in regard to the price achieved
- Vendor has no control as to who purchases
what is the process for auctions?
Firstly I haven’t had any involvement in auctions and so if a client informed me of their interest in selling an asset through auction I would refer them to the auctions department at my firm.
The process however is as follows:
- Agree ToE in writing in advance
- Conflicts of Interest checks
- AML checks
- Confirm a reserve price with the client
- Contracts exchange at the fall of the Gavel
- Auction brochures must be produced in accordance of the CPR 2008 and Misrep Act 1967
What if you are on a sale and the purchaser walks away after the exchange?
- The vendor is entitled to keep the deposit
- Vendor can sue for damages for any loss in value or cost
In relation to Auctions, what actions are required by a prospective purchaser?
- They should inspect / view the property
- Take proper legal advice and complete due diligence
- Arrange a deposit of 10% & insurance for exchange
- Provide ID for AML purposes
if you are instructed to sell an asset, what AML checks must you undertake?
- Individual: you must confirm their identity with I.D. for instance a passport or drivers licence
- Private co : Company name, address, number, name of directors with 25% share and id of directors
- PLC – check the listing on the relevant stock market
what are the three types of agency?
- Sole Agency – you are the single agent appointed by the client
- Joint Agency – two agents appointed sharing the fee on a pre-agreed basis
- Multiple Agency – A number of agents appointed however only the successful agent will get a fee
can you talk me through the typical timeline of a sales instruction?
1) Compliance
- Starts with instruction by the client
- I would then check whether I am competent and no conflicts exist
- I would then issue terms of business and an agency instruction agreement (as required by the rules of conduct and estate agents act 1979)
- Then wait for these to be returned signed by the client
- Carry out AML checks as per AML regulations 2017
2) Due Diligence
- I would then gather an information pack by the client to include lease info, surveys etc
- Undertake DD to include statutory enquiries (EPC, Flood risk) (ensure nothing that will impact the marketability)
- Check whether the property is elected for VAT or not and TOGC status
- I would then inspect, taking detailed notes of the condition and taking photographs
- Research the market and find and verify comps (can be done before for a pitch)
- Value the asset (can be done for a pitch)
3) Marketing & Completion
- Prepare a marketing report with full recommendations
- Creating particulars, being aware of both Misrep Act 1967 and CPR 2008
- Undertake marketing campaign, holding inspections and fielding questions
- Call for bids and negotiate price
- Draft HoT’s for vendor approval and send to lawyers
- Continue to be on hand for further queries
- Issue invoice on the completion
What must an Agency instruction set out?
- The agency basis (joint / sole or multiple)
- Agency rights (Sole Selling rights or Sole Agency rights)
- Proposed fee
- Marketing costs
- Confirmation of no conflicts
- AML requirements
- Timescale of payment of fees
- Details of Cushmans complaints handling procedure
- Must be signed before marketing commences
can you tell me what the difference between Sole selling rights to a fee are and what sole agency rights to a fee are?
Sole Selling Rights = (Typical) Fee due after contracts are exchanged during a period where sole selling rights exist, even if the purchaser is not found by that agent. A fee is also due for a period after the sole selling rights have expired if the party that purchases the property was one that the agent introduced.
Sole Agency Rights = A fee is only due if the agent introduces the purchaser. (less advantageous)
How can you protect your interest when acting for a client on a disposal?
- Have sole selling rights rather than sole agency rights
- Have an abortive fee i.e. a ‘ready able and willing purchasers’ clause as per Estate Agents Act 1979
What is a notice to complete?
- This is something a vendor can serve on a proposed purchaser which gives them a deadline to complete . the legal costs for this work are to be paid by the proposed purchaser. If the deadline passes then the vendor can rescind the contract and any deposit can be kept. The vendor may also be able to sue in damages to claim for any loss in value.
Talk me through the acquisition process
- Introduce property to client
- Check for conflicts as per 2017 prof statements (commercial investment agency and standard)
- AML checks (Money Laundering, terrorist financing and transfer of funds regulations 2017 & RICS Prof Statement countering bribery, money laundering and terrorist financing 2019)
- Agreement of terms of engagement (e.g. fee)
- Carry out statutory DD on property and tenant DD checking there is nothing that would impact the marketability or valuation of property
- Inspect with client
- Check for arrears
- Preparation of bid / investment appraisal, using assumptions agreed with client with regard to rental growth etc. make assumptions for exit yield for IRR etc
- Preparation of offer letter
- Agreement of heads of terms
- Instruct solicitors
- Manage through to sale answering any CPSE (commercial property standard enquiries)
what are the different types of purchase vehicle?
- Special purchase vehicle (SPV) used to avoid SDLT. Involves purchasing the the asset through buying a company
- Offshore trusts to include JPUTS (Jersey Property Unit Trusts)
- REITS
- Joint Ventures