Purchase & Sale - Level 3 (Ready) Flashcards
What does the Anti-Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 require?
- Put in place AML processes and customer due diligence
- Transaction monitoring measures
- Must submit suspicious activity reports to the NCA when potential money laundering is detected
- Must appoint an MLRO with sufficient knowledge of ML
- Must provide sufficient training to staff in AML / CTF
When can you purchase property with an EPC rating of E or less?
- Listed building
- Building due to be demolished
- Place of worship
- Temporary buildings only to be used for 2 years or less
- Site without heating
- Detached building with floor space under 50 sqm
What are the differences between formal and informal tender?
- Formal tender can lead to a binding contract
- Formal tender does not allow potential purchaser to revise their offer
What are the benefits of SPV purchase?
- Limits company’s exposure to financial risk
- Practical way of setting up a JV to work with another company on a project
- Can allow different projects to remain independent
- Allows for the ease of sale by selling the shares held in the SPV
What did your Burnham Heads of Terms include?
- Subject to Contract
- Date
- Property
- Seller
- Purchaser
- Solicitors
- Purchase Price
- Deposit
- Conditions
- Timings
- Funding
- Legal Costs
- Confidentiality
What hold costs were present for High Wycombe?
- Security (£10k)
- Business rates (£100k)
- SPV Management costs (£20k)
Why was the site sold by Auction?
- Speed of sale required as the site had considerable hold costs (c. £15k/ month)
What are the additional considerations required for Long Leasehold purchase compared to Freehold
- Ground rent
- Service charge
What impact would a shorter lease have on land value and liquidity?
- Potential to struggle to get a mortgage
- Less liquid as purchasers prefer freehold
- Only valuing ownership of the site for 47 years
How long was the lease extended for? Was a ground rent payable?
999 years at a peppercorn
What is Security of Tenure under the Landlord and Tenant Act 1954?
- Provides tenants with right to remain in occupation after the expiration of a lease
What are the relevant sections?
- Section 24 to 28
How could you argue against right to renew?
- By serving a section 25 notice noting any of the seven grounds
What is the process of formal tender?
- Similar to informal tender
- Legal pack available for prospective purchasers
- Each tender from received from prospective purchasers includes a legally binding contract for sale, with accompanying deposit
- Vendor not bound to accept the highest, or any of the offers
- Once favoured bid has been accepted, deposit is accepted and contracts are exchanged
What is the process of informal tender?
- Useful bridge between private treaty and formal tender
- Property is openly marketed for a period of time
- Date set for the receipt of written offers
- Vendor may then compare all offers on a “like for like” basis
- Vendor not bound to accept the highest, or any of the offers
- Possibility for further negotiations
- Offer not legally binding and transaction progresses subject to contract
- Encourages “would be” purchasers to commit to a sale, and to conclude within pre-determined timescale BUT also maintains a degree of flexibility with regard to timescales and further negotiations
What are the benefits of acquiring a property in a SPV?
- Limits the firms exposure to financial risk
- Allows for ease in the accounting process
How did you negotiate a price for the leasehold extension?
I advised my Director to negotiate this element, and then once agreed included the agreed sum within the appraisal
How did you negotiate a price for the leasehold extension?
I advised my Director to negotiate this element, and then once agreed included the agreed sum within the appraisal
What steps could you have taken to get the tenant out at the expiration of the lease in Reading?
- Served a friendly Section 25 notice not less than 12 months and not more than 6 months before the end of the tenancy
- Utilising ground that landlord intends to redevelop the site
What is the difference between exchange and completion?
Exchange - This is where contracts are exchanged which makes the matter legally binding
Completion - This is where legal ownership of the property is transferred
Say you received two offers on a property, one was an all equity purchaser and the other purchasing subject to finance.
What would you do if the all equity purchaser was offering a lower price?
- I would consider my clients needs and objectives
- Do they need certainty of sale or if the key driver to maximise returns?
- If there were time pressures, I would advise them to proceed with the all equity purchaser
- If they were not under time pressure, they could consider the offer subject to finance
What abortive fees would you typically negotiate in your terms of engagement?
- Payment of marketing expenses within the marketing budget
- “Ready, able and willing purchaser” clause meaning a fee would still be payable if the vendor withdrew the property
Give some examples of the different forms of purchase vehicle?
- Special Purpose Vehicle
- Offshore unit trust
- Joint Venture between two or more parties
What is a condition precedent?
- A clause within a contract that must be satisfied before completion
- Example would be achieving planning consent
Once Heads of Terms have been agreed, what do the solicitors draft?
Sale and Purchase Agreement (SPA)
What actions are required of a purchaser ahead of an auction day?
- View the property and consider structural survey
- Take proper legal advice
- Complete due diligence
- Read the notice to prospective buyers
- Arrange a deposit of 10% and insurance for exchange
- Provide ID for AML checks
What is the process of an Auction?
- Conflict of interest checks
- Terms of engagement
- AML checks
- Full DD
- Conditions of sale, Memorandum of sale and any notices to bidders published by Auctioneer
- Reserve price set
- Clarify Auctioneers right to refuse bids, regulate increments and accept proxy/telephone bids
- Contracts exchanged at the fall of the gavel
What are the four main methods of sale?
- Private treaty
- Auction
- Formal Tender
- Informal Tender
What factors should you consider when recommending a method to your client?
- Key drivers / objectives?
- Level of market interest
- Requirement for confidentiality
- Market conditions
What is Private Treaty?
- Parties free to negotiate between themselves
- Private matter
- Open market
What are the advantages of private treaty?
- Confidentiality
- Flexibility
- Cost effective
What are the disadvantages of private treaty?
- Potential for gazumping or gazundering
- Gazumping is where seller takes a higher offer at last minute
- Gazundering is where buyer decreases offer at last minute
- Potential for abortive costs
- Lack of competitive tension
When would you recommend use of Informal Tender?
- Good level of interest
- Confidentiality of sale required
- Certainty of sale required
What is the process of Informal Tender?
- Agent invites bids in writing, setting out bid deadline
- All bids opened in front of client
- Best bids procedure is not legally binding so either party can withdraw at any point up to contract
What is the difference between the Misrepresentation Act 1967 and the Consumer Protection from Unfair Trading Regulations 2008?
Misrepresentation Act 1967
• Action can be limited by an effective disclaimer
• Civil offence actionable by tort
• Relates only to misrepresentation or false statement of fact by a party during pre-contractual enquiries
Consumer Protection from Unfair Trading Regulations 2008
• Action cannot be limited by a disclaimer
• Criminal offence
• Related to the entire agency process
What guidance would you need to follow when issuing terms of engagement?
Estate Agents Act 1979
- Requires you to provide clarity on terms of engagement
- Requires the disclosure of a personal interest
- Requires you not to tell the client about offers received
Can you tell me about the Misrepresentation Act 1967?
- Misrepresentation or a false statement of fact made by a party during pre-contractual enquiries, which has the effect of inducing the party to purchase
- Misrep can be fraudulent, negligent or innocent
- Agent has a duty of care to check that the advice is reliable
STEPS TO AVOID
- Particulars are not to be considered a formal offer
- Should not be relied upon as statements or representations of fact
- Whilst every care is taken in their preparation no liability can be accepted for their accuracy
- Purchasers must satisfy themselves by personal inspection or otherwise as to the correctness of the particulars
