Purchase & Sale Flashcards

1
Q

what is private treaty?

A
  • 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
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2
Q

What are the benefits of Private Treaty?

A
  • Flexible process with the parties having control
  • The vendor is under no obligation to sell
  • It is confidential
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3
Q

Are there any drawbacks to Private Treaty?

A
  • 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)
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4
Q

what are the typical practices associated with a formal bids process?

A
  • 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.
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5
Q

What are the differences between formal and informal tender?

A
  • 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
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6
Q

What are the benefits of Formal tender?

A
  • Guaranteed sale / removes the risk of last minute abortion
  • Greater public accountability
  • Takes away the risk of Gazundering
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7
Q

why might someone use an auction?

A
  • 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
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8
Q

What disadvantages are associated with Auctions?

A
  • Costly process
  • lack of confidentiality in regard to the price achieved
  • Vendor has no control as to who purchases
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9
Q

what is the process for auctions?

A

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

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10
Q

What if you are on a sale and the purchaser walks away after the exchange?

A
  • The vendor is entitled to keep the deposit
  • Vendor can sue for damages for any loss in value or cost
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11
Q

In relation to Auctions, what actions are required by a prospective purchaser?

A
  • 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
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12
Q

if you are instructed to sell an asset, what AML checks must you undertake?

A
  • 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
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13
Q

what are the three types of agency?

A
  • 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
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14
Q

can you talk me through the typical timeline of a sales instruction?

A

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

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15
Q

What must an Agency instruction set out?

A
  • 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
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16
Q

can you tell me what the difference between Sole selling rights to a fee are and what sole agency rights to a fee are?

A

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)

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17
Q

How can you protect your interest when acting for a client on a disposal?

A
  • 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
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18
Q

What is a notice to complete?

A
  • 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.
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19
Q

Talk me through the acquisition process

A
  • 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)
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20
Q

what are the different types of purchase vehicle?

A
  • 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
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21
Q

what is a CPSE?

A
  • A Commercial Property Standard Enquiry. These are standard searches carried out prior to exchange of contracts.
22
Q

what is the legal process of a sale?

A
  • Once HoTs are signed, they are then sent to the solicitors
  • Vendors solicitor will then produce a draft contract for sale and submit to the purchaser’s solictors for comments
  • Will also provide copies of land reg docs
  • Buyers solicitor will then review and reply with any queries or requests
  • Once contract agreed between lawyers, contracts cn be exchanged and deposit is usually paid. During this process I maintain contact with the solicitor and was able to help with any CPSE’s
  • Completion can be simultaneous or delayed due to funding arrangements etc
23
Q

What is typically included within the HoTs for a sale?

A
  • Property
  • Vendor
  • Vendors solicitor
  • Purchaser
  • Purchasers solicitor
  • Agents
  • Price
  • Funding
  • Conditions (vendor and purchaser)
  • Any Approvals
  • timescales
  • Top ups
  • Costs (each party to pay for their own)
  • VAT (elected or not)
  • Capital allowances (transfer over)
  • Exclusivity (cannot speak or negotiate with any other party)
  • Confidentiality (price not to be disclosed til after the sale has completed)
  • AML (both sets to comply)
24
Q

What does it mean if the property is VAT elected?

A
  • Vat payable on purchase price
25
Q

What is a TOGC?

A
  • A transfer of a going concern is when a VAT elected property is sold with the benefits of an existing lease, sold with tenants in place. The vendor is usually required to charge VAT at 20% however if the new owner allows the continuation of the letting to the tenants, then subject to conditions this is a TOGC. Therefore no VAT is charged. Always recommend my clients seek specialist tax advice.
26
Q

in Heads of Terms, what are typical conditions that are included:

A
  • Subject to contract
  • Completion of surveys
  • Subject to IC approval
  • Parties to pay their own costs
27
Q

Can you proceed with multiple parties on an acquisition?

A
  • As per the 2017 professional statement on Commercial Investment agency, you can make multiple introductions however upon terms of engagement, the client must state whether you acting on an exclusive or non-exclusive basis. If exclusive you infrom the other parties no and if non-exclusive you must receive informed written consent that you can act for both with appropriate ethical and info barriers put in place.
28
Q

what do you do if you have a property under offer but receive another offer for the property?

A
  • As per the Estate Agents Act 1979, I present all my offers to my client
  • It is then my clients decision however I would advise them of the potential reputational damage of pulling out of a sale if they are in the latter stages.
29
Q

what are examples of special purchasers?

A
  • Tenants
  • Adjoining owners
  • Leaseholder
30
Q

Does GDPR impact a mailing list?

A
  • Yes they must be opted in to receive these emails and it is against the law to contact people who have opted out
31
Q

What does the Estate Agents Act 1979 apply to?

A
  • Disposal or acquisition of an interest in land
  • Freehold property
  • Leasehold property with a capital value
  • Land as well as buildings
32
Q

what are the principles of the Estate Agency Act?

A
  • Clarity as to the terms of the agency
  • Honest and accuracy
  • Agreement and liability for costs
  • Openness regarding personal interests
  • Absence of discrimination
  • Legal obligation to tell clients about offers received
  • Keep clients money separate
33
Q

what are the key principles of the Estate Agency act?

A
  • Specify all costs and fees in advance, in writing in the terms of business
  • Itemize all payments
  • Specify the nature of the agency and selling rights
    o Sole selling rights or sole agency rights
    o Sole, joint or multiple agency?
  • Disclosure of personal interests with any personal interest being disclosed
  • Can only tell the truth regarding offers received and not be misleading
  • Follow RICS guidance on handling clients’ money
34
Q

What penalties are there for non-compliance with the Estate Agents Act 1979?

A
  • Negative licensing: involves taking away the right to be an estate agent
  • Prohibition: stops an agent practicing
  • Warning order – just a written warning
35
Q

who polices the Estate Agency Act 1979?

A

The National Trading Standards Estate & Letting Agency Team

36
Q

what offences cause a breach of the Estate Agency Act?

A
  • Acting dishonestly.
  • Not providing clarity to the terms of engagement or disclosing a personal interest.
  • Not telling the client about offers received.
37
Q

what are the consumer protection regulations in the UK?

A
  • These are the Consumer Regulations 2008, under the Enterprise Act 2002. The CPR 2008 prohibit unfair business practices.
38
Q

What is the Regulation protecting business to business agency transactions?

A

The Business Protection Regulations from Misleading Marketing Regulations 2008. These Mirror the CPR 2008

39
Q

when do the Consumer Regulations 2008 apply?

A
  • Throughout the entire agency, sales and letting process.
40
Q

what are examples of unfair practices under the CPR 2008?

A
  • This could include giving false or misleading information, hiding or failing to provide information, hiding or failing to show professional diligence.
41
Q

Under the Consumer Protection Regulations (2008), to whom does the agent owe a duty of care?

A
  • The client, purchaser, any potential purchaser, any potential client all of whom are defined as consumers.
42
Q

what obligations to agents have under the CPR 2008?

A
  • Agents have a duty of care to all lettings and sales
  • Agents must declare everything they know good or bad
  • Agents must not exert undue pressure on potential buyers
  • Full DD is required on all new instructions
  • Information must be validated by the client
43
Q

Do disclaimers apply to the CPR 2008?

A
  • No. Only to the Misrep Act 1967
44
Q

Who enforces the Consumer Protection Regulations 2008?

A
  • The Trading Standards Office of the local authority
45
Q

What are the penalties for non-compliance with the CPR 2008?

A
  • An unlimited fine, a prohibition order and/or up to 2 years in prison.
46
Q

what does the Misrepresentation Act 1967 refer to?

A
  • Misleading or false statements, that induce the acquisition of a property during pre-contract enquiries
  • The vendor can be sued for negligence and a contract rescinded
  • Civil offence (actionable as Tort)
47
Q

What are the Key Differences between the Misrepresentation Act (1967), and the Consumer Protection Regulation (2008)?

A

A. Breach of the BPRs or CPRS (2008) is a criminal offence, breach of the Misrepresentation Act is a civil offence and enforced through Tort. Misrepresentation can be Negligent, Innocent or Fraudulent.
B. Misrepresentation Act relates to pre-contractual enquiries on Freehold / Leasehold transactions whereas CPR 2008 relates to the entire process for both leasing and letting.
C. A disclaimer can be effective for the Misrep Act but not CPR 2008

48
Q

what are the penalties for non-compliance with the Misrepresentation Act 1967?

A
  • Can be sued for financial damages. Not a criminal offence.
49
Q

What is a cooling off period?

A
  • This is 14 days in which a client can change their mind and cancel the instruction in accordance with the consumer protection regulation 2008.
50
Q

what came into effect in 2015 and how does it impact agency work?

A
  • The Consumer Rights Act 2015. Lettings now have to publish all of their fees online and in their offices clearly. If a firm handles client money then they have to say if they are signed up to a Client Money Handling Scheme and name which one. It is policed by the local authority.