The legal processes needed to complete a sale/purchase Flashcards
What are the requirements for Agency Instruction Agreements under the RICS ROC, 2007 and the Estate Agency Act 1979 (Sections 18 and 21)?
Must clearly set out the following information:
- Agency basis (sole/joint agency)
- Agency rights (sole selling or sole agency rights)
- Proposed fee
- Marketing costs and disbursements
- Confirmation of no conflicts of interest
- Money laundering Regulation requirements
- Timescale for the payment of fees & disbursements
- Details of the practice’s CHP
- Must be signed & returned to the agent before marketing can commence
(Do not confuse agency ToE with requirements of the Red Book for valuation work. This is a common error!)
What is the difference between sole selling rights and sole agency rights?
Typical clause = sole selling rights = fees payable if contracts are exchanged in period when sole selling rights exist, even if purchaser is not found by the agent but by another party
Fee also due after sole selling rights period ends when property sold to a purchaser who was introduced by the firm during the period of the sole selling rights contract
Alternatively sole agency rights can be agreed which means a fee is only due if the agent introduced purchaser within term of instruction agreement
What is a ‘ready able and willing purchasers’ clause?
As defined by the Estate Agents Act 1979
Clause often included so that when applicant = ready and able to proceed with purchase but client then decides to withdraw, an abortive fee may be charged by the agent
What are the 3 types of agency?
Sole agency - only one agent
Joint agency - two or more joint agents sharing a fee on a pre-agreed basis
Multiple agency - any number of agents but only the successful agent gets a fee
What is the timeline of an investment sale instruction for an agent?
Receive instructions from the client
Check competence (Skills, Understanding, Knowledge - SUK)
Check independence so no COI / personal interests
Issue agency instruction agreement to the client
Receive agreement signed by the client - s18 of the Estate Agents Act 1979
Complete and record money laundering checks (Money Laundering Regulations, 2007)
Gather info - inspection details, leases, title documents, planning information, OS plans, floor Mans, warranties etc.
Undertake due diligence - RTL(s), environmental, planning, legal, contamination, tenant covenant status and other statutory enquiries to ensure nothing detrimental to sale of property
Check VAT position of vendor and whether the sale has Transfer of Going Concern (TOGC) status
Inspect and measure property taking detailed notes / photographs
Confirm position for fixtures and fittings with vendor
Research market and assemble and analyse comparables
Undertake valuation of freehold interest (not Red Book)
Prepare marketing report to vendor with full recommendations
Obtain written approval of the contents of marketing particulars (Property Misdescriptions Act 1991 and Misrepresentation Act 1967 et al)
Undertake marketing campaign as agreed
Negotiate sale, draft HOTs and instruct lawyers
Liaise with vendor’s lawyer in respect of Commercial Property Standard Enquiries (CPSEs)
Assist with any queries during legal formalities
Issue invoice upon completion of the transaction and retain file
Can you tell me what the different Commercial Property Standard Enquiries (CPSEs) are?
CPSE1 – general enquiries Supplemental CPSE2 – commercial tenancies CPSE3 – grant of a lease CPSE4 – assignment
What are the steps to be taken in a property acquisition for an agent?
Check for COI and competence
Agreement of terms of engagement (CIT)
Undertake a money laundering check
Understand client’s objectives and agree search parameters
Consider techniques to find properties - cold calling/advertising/websites etc.
Measurement and valuation
Check planning use/consent/ conditions/any proposed developments
Undertake due diligence: asbestos, legal title, contamination, tenant’s covenant check and flooding
Arrange for a structural survey to be completed
Covenant approval information to be supplied to the landlord / vendor
Negotiation and instruction of solicitors
Any forms of purchase vehicles
What are the different forms of purchase vehicles?
Special Purchase Vehicle (SPV) company = subsidiary created by parent company to isolate financial risk = tax-efficient way of landlords holding a portfolio of buy-to-let properties
Offshore unit trusts such as JPUTs (Jersey Property Unit Trusts)
REITS - a company tax resident in the UK which is listed on a Stock Exchange and has >75% business in property investment.
Joint ventures
What happens when the transaction fails to complete?
Vendor can serve Notice to Complete on proposed purchaser giving them a deadline to complete
Legal costs for this work = to be paid by proposed purchaser
If deadline = passed, vendor can withdraw contract and remarket the property
Any deposit can be retained by vendor
Additionally, vendor may be able to sue for damages for any loss in value following sale of property to another party at lower sale price
What are Conditions Precedent?
A legal term describing a condition / event that must come to pass before a specific contract is considered in effect
What are the RICS Valuation Global Standards 2020 (Red Book) requirements for Agency Work?
Valuation procedures not required for ‘certain agency or brokerage work’
Instead covered in RICS Real estate agency and brokerage guidance, 3rd edition (2016)
RB not required for ‘advice given in respect of disposal / acquisition of an interest on the anticipated price payable /achievable or advice as to whether an offer should be accepted or made’ or ‘in preparation for or during negotiations’
BUT a Red Book valuation required for purchase reports for acquisitions of property that include a valuation
What is the difference between the Misrepresentation Act 1967 and the Consumer Protection from Unfair Trading Regulations 2008?
Misrepresentation Act = protect consumers from false / fraudulent claims encouraging you to buy something / entering a contract. It also allows you to claim damages.
Consumer Protection from Unfair Trading Regulations protects consumers from unfair or misleading trading practices and ban misleading omissions and aggressive sales tactics
What is Exchange?
Exchange = exchange of contracts and makes matter legally binding between buyer and seller
At exchange, need to pay an exchange deposit to seller = usually 10% of property price and might be different to mortgage deposit
If 10% = too much because, e.g. you’re buying with a 95% mortgage and only have 5% available before your mortgage completes, your solicitor should usually be able to negotiate the exchange deposit down to 5%
Exchange deposit = to show seller you’re definitely going to buy the property. If you pull out the deal after exchange, the seller can sue you to keep the exchange deposit.
What is Completion?
Completion = date parties physically move and transfer legal ownership of the property
When you exchange contracts, solicitors will agree a completion date. As legal firms can be sued if they fail to meet this date, they have a strong incentive to meet the deadline.
Completion dates = often set 2 weeks after exchange, but just a guideline. If no one in the chain is in a hurry to move, you can ask for more time
Completing on a Friday = popular because it gives you the weekend to settle into the property, but Fridays’ popularity does also mean that conveyancing and removals firms tend to book up fast
Tell me about the legal processes in a commercial purchase/sale
Negotiate the sale, draft HOTs and instruct lawyers
Title documents obtained by solicitor - assuming the property is registered at Land Registry
Contract drafted and title info prepared – your solicitor will send to the buyer’s solicitor the contract package, including draft sale contract, title documents, EPC and replies to Commercial Property Standard Enquiries (CPSEs)
Solicitor will conduct appropriate searches on the property
Assist with any queries during legal formalities
Instruct exchange of contracts (take deposit money)
Completion of sale after completion money has been paid
