Purchase & Sale L1 Flashcards
What are the four methods of sale?
Private Treaty, Formal Tender, Informal Tender, Auction
Each method has unique characteristics regarding negotiation and binding offers.
What is the Private Treaty method of sale?
Property is marketed at a set price, allowing negotiation between buyer and seller.
What is the Formal Tender method of sale?
Buyers submit binding offers by a set deadline, with the highest bids securing the property.
What is the Informal Tender method of sale?
Similar to formal tender but non-binding, allowing negotiations after submission.
What is the Auction method of sale?
Buyers bid in a competitive environment, and the highest bid immediately exchanges contracts.
What is an advantage of sale by Private Treaty?
Allows flexibility & negotiation.
What is a disadvantage of sale by Private Treaty?
Can be a slow process.
What is an advantage of sale by Formal Tender?
Ensures a legally binding offer.
What is a disadvantage of sale by Formal Tender?
Higher costs for bidders.
What is an advantage of sale by Informal Tender?
Generates interest without commitment.
What is a disadvantage of sale by Informal Tender?
No legal certainty until contracts exchanged.
What is an advantage of sale by Auction?
Certainty – contract exchanged on the day.
What is a disadvantage of sale by Auction?
May not achieve highest price.
What are the legal processes to complete a purchase/sale?
Pre-Contract, Exchange of Contracts, Completion, Post-Completion.
What happens during the Exchange of Contracts?
Binding agreement, deposit paid.
What occurs during Completion?
Transfer of ownership, payment settled, keys handed over.
What is the Estate Agents Act 1979?
Regulates conduct in property transactions.
What does the Misrepresentation Act 1967 ensure?
Truth in marketing.
What are the six key principles of the Estate Agents Act 1979?
- Act honestly in clients’ best interests
- Provide clear terms of business
- Disclose conflicts of interest
- Avoid misleading descriptions
- Handle client money properly
- Follow complaints procedures
How does Section 18 relate to agency practice?
Limits tenant liability for dilapidations, affecting investment decisions and lease negotiations.
What are the four agency bases?
- Sole Agency
- Joint Sole Agency
- Multiple Agency
- Sole Selling Rights
What is a Sole Agency?
One agent, no fee if the owner finds a buyer.
What is a Joint Sole Agency?
Two agents share commission.
What is a Multiple Agency?
Multiple agents, only the successful agent gets paid.
What are Sole Selling Rights?
The agent gets paid regardless of who finds the buyer.
What defines interests in land?
Law of Property Act 1925.
What is a ready, willing and able purchaser?
Has funds available, is prepared to proceed on the seller’s terms, is legally able to complete the transaction.
What does Section 21 of the Housing Act 1988 allow?
Landlords to evict tenants without fault at the end of an Assured Shorthold Tenancy (AST).
What three elements are needed to make a contract?
- Offer
- Acceptance
- Consideration
Can a verbal contract be legally binding?
Yes, but contracts for land must be in writing under the Law of Property (Miscellaneous Provisions) Act 1989.
What is capacity in relation to contract law?
A party’s legal ability to enter a contract.
Does the sale of land have to be in writing?
Yes, under the Law of Property (Miscellaneous Provisions) Act 1989.
What do the Consumer Protection Regulations state?
Agents must not mislead buyers or tenants.
What is material information?
Key facts affecting a purchasing decision.
What are considered unfair practices under Consumer Protection legislation?
Misleading buyers or tenants, failing to disclose material information.
How does the Misrepresentation Act 1967 relate to agency practice?
Prevents false statements in property sales/lettings.
What does the Unfair Contract Terms Act 1977 state?
Prevents unreasonable exclusions of liability in contracts.
What are the key principles of the RICS Professional Standard Property Agency and Management Principles?
- Transparency in transactions
- Fair treatment of clients and consumers
- Compliance with professional and legal obligations
What are three key issues raised in the RICS Real Estate Agency and Brokerage Standards?
- Client confidentiality & conflict management
- Duty to disclose material information
- Fair agency terms & clear fee structures
What factor drives property markets?
- Interest rates
- Supply & demand
- Economic growth
- Government policies
What government incentives impact demand in relation to property transactions?
- First Homes Scheme
- Stamp Duty Land Tax (SDLT) reliefs
- Capital Allowances
- Help to Buy
What are current SDLT levels for commercial property?
- 0% on purchases up to £150,000
- 2% on the portion from £150,001 to £250,000
- 5% on the portion above £250,000
What is SDLT?
Stamp Duty Land Tax (SDLT) is a tax paid on property transactions in England and Northern Ireland.
What are the different types of interest in land?
- Legal interests
- Equitable interests
What is the difference between freehold and leasehold?
Freehold: indefinite ownership; Leasehold: fixed period under a lease agreement.
What are profits a prendre?
A right to take something from another person’s land.
What is a rent charge?
A regular payment made by a freehold property owner to a third party.
What legislation relates to rent charges?
The Rentcharges Act 1977.
What happens if a rent charge is not paid in full?
Claim arrears through legal action.
What is an example of an equitable interest in land?
Beneficial interest under a trust.
What is an example of a legal interest in land?
Registered charge (mortgage).
Why use online marketing for property transactions?
- Wider exposure
- Cost-effectiveness
- Speed
- Data and analytics
What is included in a standard information pack for a property transaction?
- Title documents
- Planning documents
- Surveys & reports
- Lease details
- Tenancy schedule
- Service charge & ground rent details
- Legal pack
What are CPSEs?
Commercial Property Standard Enquiries used in property transactions.
What is a Memorandum of Sale?
A non-legally binding document prepared after an offer is accepted.
What governs the auction process?
Law of Property Act 1925, Misrepresentation Act 1967, Consumer Protection from Unfair Trading Regulations 2008, Estate Agents Act 1979.
What is the auction process?
- Pre-auction: Seller instructs auctioneer, legal pack prepared
- Auction Day: Bidders register, bidding process
- Post-auction: Buyer signs contract, deposit paid
When is an auction sale legally binding?
When the auctioneer’s hammer falls.
What due diligence should be carried out pre-auction?
- Legal pack review
- CPSE enquiries
- Site inspection
- Planning and environmental checks
- Checking tenancy agreements
What are the advantages for sellers at auction?
- Speed of sale
- Certainty
- Competitive bidding may drive price up
What are the disadvantages for sellers at auction?
- If reserve price isn’t met, no sale
- Costs of marketing and auction fees
What are the advantages for buyers at auction?
- Transparent process
- Potential to acquire undervalued assets
What are the disadvantages for buyers at auction?
- Limited time for due diligence
- Immediate deposit payment required
- Risk of overbidding
What do the RICS Common Auction conditions cover?
- Contract formation
- Deposit payments
- Completion timelines
- Buyer/seller obligations
What is a guide price in an auction?
The initial advertised price giving buyers an indication of the expected sale price.
What is a reserve price in an auction?
The minimum price the seller is willing to accept.
What is an addendum in the context of auctions?
A document updating information about a lot before an auction.
What are typical fees for an auctioneer?
- Seller’s fee: 1.5% - 2.5% + VAT
- Buyer’s fee: Fixed or percentage-based
- Entry fees: Some auction houses charge sellers
Can you sell a property before or after auction?
Yes, sellers can accept pre-auction offers or negotiate after the auction.
How does finance work for auctions?
Buyers must arrange finance before bidding, as completion is usually within 20-28 days.
What are the possible fee structures for auction houses?
Fixed (£500 - £2,000) or percentage-based.
Can a seller accept offers before an auction?
Yes, if they meet/exceed expectations.
What happens if a property does not meet its reserve price after an auction?
The seller can negotiate with interested bidders.
What must buyers do regarding finance before bidding at an auction?
Arrange finance before bidding, as completion is usually within 20-28 days.
What types of properties may not be mortgageable?
Derelict or short leases.
What are bridging loans used for in the context of auctions?
Quick financing if a mortgage isn’t feasible within the timeframe.
What deposit is typically payable upon winning a bid at auction?
A 10% deposit of the purchase price.
What happens if a buyer fails to complete after winning a bid?
It may result in forfeiture.
What are the methods to bid at an auction?
- In person
- Telephone bid
- Online bidding
- Proxy bid
What is a proxy bid?
A maximum bid submitted in advance, with the auctioneer bidding incrementally on behalf of the buyer.
When is insurance required for an auction purchase?
Immediately after exchange (when the hammer falls).
Who is responsible for insurance in an auction sale?
The buyer is responsible immediately.
Is VAT payable on auction properties?
Yes, if the seller has opted to tax the property.
What is the standard VAT rate on auction properties?
20% on the sale price.
What key principles are outlined in the RICS Professional Standard Auctioneers Selling Real Estate (6th Edition)?
- Transparency
- Professional conduct
- Due diligence
- Bidding integrity
What are the EPC requirements at auction?
EPC must be available for buyers to view before auction.
What is the Minimum Energy Efficiency Standard (MEES) in relation to auctions?
Landlords cannot let properties below an E rating since April 2023.
What should be checked regarding the auction venue?
- Venue compliance with health & safety regulations
- Capacity for bidders
- AV equipment for online/remote bidding
- Accessibility for bidders with disabilities
What does the Sale of Land by Auction Act 1867 require?
- Contracts must be in writing
- Auctioneer must disclose if bidding on behalf of the seller
- Disclosure required if a property is withdrawn after bidding
How are arrears handled in relation to auction properties?
The buyer must check the legal pack for arrears on service charges, rent, or business rates.
What should be included in auction particulars?
- Property description
- Tenure and lease details
- Guide price and VAT liability
- EPC rating
- Key conditions of sale
- Viewing arrangements
What is the power to sell in the context of property auctions?
A legal right to dispose of a property.
What does the 1927 Auctions (Bidding Agreements) Act prohibit?
Collusive bidding agreements to suppress auction prices.
What does the 1969 Auctions (Bidding Agreements) Act require?
Declarations of bidding agreements, or the sale can be voided.
What are Use Classes in planning law?
Categories defining property use set out in The Town and Country Planning (Use Classes) Order 1987.
What is an example of a residential use class?
C3 – Residential housing.
What change was made to Use Classes on 1st September 2020?
Class E was introduced, merging A1, A2, A3, B1.
Why are Price on Application (POA) listings considered unlawful?
They breach Consumer Protection from Unfair Trading Regulations 2008 as they lack transparency.
What changes did the Charities Act 2022 introduce regarding charity land disposal?
- New flexibility for disposal of charity land
- Charities can seek advice from RICS members
- Reduces red tape on disposals
