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HJB APC > Purchase & Sale > Flashcards

Purchase & Sale Flashcards

1
Q

What are the four methods of sale and when would you use them?

A

Private Treaty
Formal Tender
Informal Tender
Auctioneering

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2
Q

What are the advantages and disadvantages of each method

A

PT – an easy method of sale interacting with a single purchaser, choose purchaser.
FT – used for statutory tender processes. Ensures competitive process. Can go straight from accepting preferred bid to exchange of contracts, but can’t choose purchaser, unless agreed prior can only accept highest bid.
IT – ensures competitive process, numerous rounds of bidding. Can choose purchaser. May be renegotiation later as unlike FT legal process can continue.
AU – speed, can’t choose purchaser, not confidential.

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3
Q

What factors must you consider when choose a method of sale?

A

Purchaser situation (in financial trouble may need money quickly (auction).
Type of asset (e.g. if government needs FT process).
Popular asset may choose IT process to attract best price.

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4
Q

What factors can influence the value of an asset?

A

Location, specification, condition, tenant covenant strength, lease length remaining and lease terms.

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5
Q

What relevant legislation surrounds the sale of property?

A

Misrepresentations Act 1967.
estate Agents Act 1979.
Consumer Protection Regulations 2008.

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6
Q

What are principles of the Estate Agents Act 1979?

A
  1. Clear terms of business
  2. Act fairly, honestly.
  3. Report any conflicts to the client.
  4. Do not discriminate.
  5. All bids must be reported to the client.
  6. Agreement / liability for costs.
  7. Keep client’s money separate
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7
Q

When does Estate Agents Act 1979 apply

A

Disposal/acquisition of an interest in land.
Freehold property.
Leasehold with capital value.
Land as well as buildings.

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8
Q

Offences of breaching EEA 1979

A

Prohibition (right to be estate agent taken away)
Warning order.

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9
Q

What are principles of the Misrepresentation Act 1967?

A

Can not use misleading information during the pre-contractual enquiries to a purchaser which causes the interested party to purchase the property.

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10
Q

When does Misreps Act apply?

A

Sale and leasing of all properties

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11
Q

What are the offences for misreps act? What are the penalties?

A

Civil offence.
Sued for damages.

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12
Q

What are principles of the Consumer Protection Regulations 2008?

A

Business to consumer.
Duty of care to all clients, not just your own. E.g. potential purchaser, actual purchaser, vendor.
Throughout the entire transaction

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13
Q

When does CPR apply? What are the penalties

A

Entire transaction process
unlimited fine and 2 years prison

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14
Q

What is money laundering?

A

The process of ‘cleaning’ illegally obtained money through legitimate business.

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15
Q

What is the importance of undertaking money laundering checks?

A

To ensure that the money being used in the transaction has not come from illegal activities.

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16
Q

What is the legislation surrounding money laundering?

A

Money laundering, terrorist financing and transfer of funds regulations, 2017.

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17
Q

What are the key provisions of the MLR?

A
  1. Firms have written ML and TF risk assessment.
  2. Implement policies and processes to address ML and TF.
  3. Adopt internal controls.
  4. Provide staff training.
  5. Comply with new customer enhanced and simplified dd requirements,
  6. Ensure appropriate record keeping.
  7. AML checks undertaken before contracts are exchanged.
  8. Include additional high risk factors when assessing need for enhanced dd (e.g. transaction undertaken in 3rd world country).
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18
Q

What are the penalties for non-compliance of MLR?

A

Unlimited fine and 14 years prison.

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19
Q

What are some of the core principles of the RICS Professional Statement UK Commercial Real Estate Agency 1st Edition 2016?

A
  1. Clear ToE
  2. Act fairly, honestly.
  3. Carry out work with due care, skill.
  4. Set out liability.
  5. Handle client money separately.
  6. Don’t discriminate.
  7. Communications with client clear and transparent.
  8. Identity of client clear and obligations to each party clear.
  9. Realistic assumptions of selling prices.
  10. Ensure meetings carried out in accordance with clients wishes.
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20
Q

What did the particulars include?

A

Price
Asset name, address.
Date of particulars.
Location.
Specification
Pictures.
Agent’s contact details.
Note that compliant with Misreps Act 1967.

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21
Q

What was included on the website listing?

A

A link to an information room with more data.

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22
Q

What are the rules surrounding marketing boards?

A

2m for plain boards, 2.3m for V boards.
1 board per building.
Illuminated, any bigger, suspended need planning permission.
Must have consent from the owner.
May need planning if on listed building.

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23
Q

What method of sale did you use and why?

A

Private treaty followed by informal tender. Wanted to create a competitive bidding process due to the initial interest in the property.

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24
Q

Why did you send the opportunity to a tailored list?

A

It was a unique asset. Annuity grade income which pension funds would pay the most money for as that is how their funds tend to be set up, requiring a lower target rate of return than other funds (e.g. value-add).

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25
Q

How did you manage enquiries?

A

Schedule of enquiries
Data room access was given upon request. We also monitored who accessed the files to understand who had undertaken the correct DD.

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26
Q

What did you have regard to when undertaking site viewings?

A

Professional Standard ‘Surveying Safely’ 2018

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27
Q

Why did you create a bid proforma?

A

To be able to subsequently make a bid matrix to present to my client and judge all interested parties on an equal basis with the same level of information.

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28
Q

What did bid proforma include?

A

Price, timeframe, track record, conditionality, confirmation of reviewing data room.

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29
Q

Why did you create a bid matrix?

A

To present the bids in a simplistic manner to my clients.

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30
Q

What did bid matrix include?

A

Price, conditionality, timeframe, deposit, track record

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31
Q

What is an allocation?

A

A piece of land that the local planning authority has deemed suitable for development.

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32
Q

What was included in the data room?

A

Planning drawings
SI and surveys
Building layout, specification.
AfL information.

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33
Q

Talk me through the marketing process?

A

We inspected the site, pulled together a marketing particulars. Initially we expected to it would be by private treaty but then due to the high amount of interest we carried out an informal tender process.

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34
Q

How did you analyse the initial bids?

A

We created a bid matrix, with key information from the bid proforma. This included:
 Purchase price.
 Deposit.
 Timeframe.
 Track record.
 Conditionality.

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35
Q

What are abnormals?

A

Works that need to be undertaken that would be unique to that development.
Bringing in new services, Cut and fill, Estate road.

36
Q

What is a development agreement

A

Development drawdown agreement = agreement between developer and the developer.
Development funding agreement = agreement between developer and fund.

37
Q

What is freehold?

A

The ultimate owner of the land.

38
Q

What were the client’s objectives?

A

To maximise their land value but with a reputable fund who would deliver on the contract.

39
Q

What is vacant possession?

A

A building that is not occupied.

40
Q

What was the purpose of keeping the client regularly updated during bidding process? Why is this important?

A

As it was a long process, two stage bidding process, there was a lot of information being updated quickly. We needed to inform the clients of the bids received and our reasoning for the strategy we were pursuing.

41
Q

What in an unconditional offer? How does this compare to a conditional offer?

A

There are no conditions ahead of purchasing the property.
Typical conditions for a fund is conditional upon planning.

42
Q

Why did you undertake an informal tender process?

A

This allows us to create competitive tension amongst potential purchasers, as well as having a second round of ‘best and final’ bids.

43
Q

Why did you create a scoring matrix? How would you create one?

A

We have not created a scoring matrix, but we have had to be part of a scoring matrix for a formal tender there was a scoring matrix. There were a number of different categories and each category was weighted depending on its importance, with a score of 1-10.

44
Q

What is the benefit of using a scoring matrix?

A

It is weighted towards your most important points, and therefore should allow you to choose the most preferential candidate based on your inputs.

45
Q

What is a targeted marketing approach? Pros and cons?

A

Going to a list of potential purchasers you think would be interested in purchasing the asset.
Good - Saves sieving through a list of unviable purchasers.
Bad - Relying on market knowledge / company’s knowledge. Could potentially miss a few interested parties.

46
Q

What is the purpose of the schedule of technical queries? What would a collation of technical queries raised involve?

A

All questions that any parties may have are answered and for completeness all parties are privy to all questions being answered.
In a recent formal tender process, we had questions and the answers were made available to all parties for completeness.

47
Q

What would you do if offers received didn’t reflect what you thought you could achieve for the site?

A

For an informal tender process, we would ask for a second round of bidding with ‘best and final’ offers.

48
Q

How do you recommend to your client who they should go with to purchase the site?

A

Based on a bid matrix analysing the different offers. Ultimately there was a viability issue and therefore needed the highest price. We were dealing with well-known pension funds and all had a track record of delivering buildings.

49
Q

What is the difference between formal and informal tender?

A

Formal is a fixed process.
Informal can have a second stage.
Formal decision is final, informal can change parties.
Negotiation straight to exchanging of contracts, informal tends to have more negotiation after.

50
Q

Have you done any acquisition work?

A

I was involved in the acquisition of 2 industrial units on an estate in Harlow for redevelopment purposes.

51
Q

What are the key inclusions for Heads of Terms?

A

Vendor name, agent name, solicitor name
Purchaser name, agent name, solicitor name.
Property address, title number.
Purchase price, deposit.
Confidentiality/exclusivity period.
Conditionality.

52
Q

What typical conditions have you dealt with?

A

Acceptable planning application
Suitable build contract.
Confirming the tenant.
Land purchase.

53
Q

What is the difference between exchange and completion?

A

Exchange is of the legal documents.
Completion is when the asset is passed over and the money is received

54
Q

What contractual obligations are placed on the parties on exchange?

A

To act within the agreed timeframes, and what is written with the contract to complete.

55
Q

What money would you expect to be transferred on exchange?

A

The deposit (10%)

56
Q

Are Heads of Terms legally binding? Are they binding if both parties sign them?

A

They are not legally binding, but if there is a confidentiality clause, a party can claim damages if a party breaks it.

57
Q

Talk me through the typical marketing costs you might incur?

A

Marketing brochures.
Website
Agent launch.
Marketing boards on site.

58
Q

Have you experiences bids coming in post deadline? How would you deal with a post-deadline bid being higher?

A

You must always report bids to your client as per Estate Agents Act 1979.
For a formal tender, they may not be able to act on the late submission as it is not in accordance with the rules.
Informal tender, they may still choose to accept it.

59
Q

What fee would you charge for a disposal? Would you lower your fee to match another firms in order to win the instruction?

A

Typically disposal fees are 1% of the net purchase price.
Wouldn’t change fee to undercut other parties.

60
Q

How do you ensure you are acting in a safe manner at property viewings

A

If by myself, follow lone working policy.
Desktop risk assessment, including speaking to site manager to understand the PPE required.

61
Q

What must firms do to comply with MLR?

A

Must carry out DD checks. Either initial due diligence or enhanced due diligence

62
Q

When would you undertake enhanced due diligence?

A

If there were red flags, including politically exposed persons

63
Q

What are some examples of red flags?

A

PEP, unusual currency, change of personnel, unable to provide ID.

64
Q

Who do you need to undertake money laundering checks on?

A

Clients and vendor.

65
Q

Are there different processes for individuals and businesses?

A

For companies, companies house, certificate of incorporation, check dd on directors with over 25% stake in business.
Individuals, form of ID and bank statement from last 3 months.

66
Q

What are the different types of agency?

A

Sole, joint, multiple

67
Q

Can you act on both sides of an agency instruction?

A

No – this is dual agency. Party conflict.

68
Q

What would you include in agency terms of business?

A

Agency basis (sole/joint agent)
Agency rights (sole selling or sole agency)
Proposed fee
Marketing costs
Confirmation of no COI
AML requirements
Timescale for fee paying and disbursements.
Details of CHP

69
Q

3 forms of misrepresentation?

A

Fraudulent
Negligent
Innocent

70
Q

Case Law regarding agency terms of business?

A

Wells Vs Devani (2019) - sketchy oral agreement in place.

71
Q

What is the timeline of a sales instruction?

A
  1. Receive instruction
  2. Check competent, independent.
  3. Issue ToB.
  4. Carry out AML checks.
  5. Gather information Undertake DD.
  6. Check VAT position of client.
  7. Undertake inspection/measurement, notify client of any issues.
  8. Research market, assemble evidence, confirm accuracy.
  9. Undertake valuation of freehold (non-RBG compliant).
  10. Prepare marketing report to the vendor with recommendations.
  11. Obtain written approvals of details in marketing brochure being accurate.
  12. Undertake marketing campaign.
  13. Negotiate sale, draft HOTs, instruct lawyers.
  14. Aid with any legal queries.
  15. Upon completion issue invoice and retain file.
72
Q

What timescales can be expected from offer to completion?

A

10 weeks. Agree HoTs and legal process (2 weeks + 8 weeks) in my experience in development.
Would expect it would be shorter in a non-development transaction.

73
Q

What is the different between an option and promotion agreement?

A

Option agreement includes the possibility to build out the land.
Promotion is just to market the site, and sell with a planning permission to a developer and take a usually 15% of the purchase price.

74
Q

What are the timescales of option/promotion agreements?

A

Varies depending on the stage of the planning process.
Stoford has option agreements typically of 10 years. Gives time to get an outline planning consent and market the scheme.
Promotion would be shorter.

75
Q

Types of purchase vehicles?

A

SPV
Offshore unit trusts (e.g. jersey fund)
REITS
Joint Ventures

76
Q

Statutory cooling off period?

A

14 days (under Consumer Right Act 2015).

77
Q

Difference between sole selling and sole agency?

A

Sole selling – get paid a fee whatever.
Sole agency – only get paid a fee if find the purchaser. If the client finds purchaser, no fee is due.

78
Q

Section of 1954 Act allows you to remove tenant for redevelopment?

A

Section 30 F.

79
Q

3 tests to decide agent’s liability to negligent statement

A

Foreseeability - damage foreseeable?
Proximity - can be characterized in law as sufficiently proximate?
Fairness - fair, just and reasonable for such a duty of care to arise?

80
Q

Caveat emptor?

A

Common law principle that buyer should satisfy themselves on all matters relating to the property

81
Q

What should you consider when choosing which form of sale?

A

client objectives
market conditions
accountability
timing requirements
likely asset demand

82
Q

Consumer Rights Act 2015

A

gives consumers new rights and remedies
consolidates law relating to unfair terms and contracts between businesses and consumers

83
Q

process of auctioneering

A

toe agreed in writing in advance
all potential buyers must inspect the property
aml check before auction
full dd prior to offering property for sale
general conditions published by auctioneer before
contracts exchanged at fall of gavel

84
Q

Business Protection for misleading information regs 2008

A

business to business
prevention of using misleading advertising

85
Q

advantages and disadvantages of private treaty

A

pros - flexible, total control, under no obligation to sell, confidential

cons - gazumping/gazunder, late decision not to buy, associated abortive costs

HJB APC (10 decks)

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