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RICS FINAL INTERVIEW COPY > Purchase & Sale - Level 3 (Ready) > Flashcards

Purchase & Sale - Level 3 (Ready) Flashcards

1
Q

What does the Anti-Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 require?

A
  • 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
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2
Q

When can you purchase property with an EPC rating of E or less?

A
  • 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
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3
Q

What are the differences between formal and informal tender?

A
  • Formal tender can lead to a binding contract

- Formal tender does not allow potential purchaser to revise their offer

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4
Q

What are the benefits of SPV purchase?

A
  • 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
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5
Q

What did your Burnham Heads of Terms include?

A
  • Subject to Contract
  • Date
  • Property
  • Seller
  • Purchaser
  • Solicitors
  • Purchase Price
  • Deposit
  • Conditions
  • Timings
  • Funding
  • Legal Costs
  • Confidentiality
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6
Q

What hold costs were present for High Wycombe?

A
  • Security (£10k)
  • Business rates (£100k)
  • SPV Management costs (£20k)
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7
Q

Why was the site sold by Auction?

A
  • Speed of sale required as the site had considerable hold costs (c. £15k/ month)
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8
Q

What are the additional considerations required for Long Leasehold purchase compared to Freehold

A
  • Ground rent

- Service charge

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9
Q

What impact would a shorter lease have on land value and liquidity?

A
  • Potential to struggle to get a mortgage
  • Less liquid as purchasers prefer freehold
  • Only valuing ownership of the site for 47 years
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10
Q

How long was the lease extended for? Was a ground rent payable?

A

999 years at a peppercorn

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11
Q

What is Security of Tenure under the Landlord and Tenant Act 1954?

A
  • Provides tenants with right to remain in occupation after the expiration of a lease
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12
Q

What are the relevant sections?

A
  • Section 24 to 28
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13
Q

How could you argue against right to renew?

A
  • By serving a section 25 notice noting any of the seven grounds
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14
Q

What is the process of formal tender?

A
  • 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
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15
Q

What is the process of informal tender?

A
  • 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
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16
Q

What are the benefits of acquiring a property in a SPV?

A
  • Limits the firms exposure to financial risk

- Allows for ease in the accounting process

17
Q

How did you negotiate a price for the leasehold extension?

A

I advised my Director to negotiate this element, and then once agreed included the agreed sum within the appraisal

18
Q

How did you negotiate a price for the leasehold extension?

A

I advised my Director to negotiate this element, and then once agreed included the agreed sum within the appraisal

19
Q

What steps could you have taken to get the tenant out at the expiration of the lease in Reading?

A
  • 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
20
Q

What is the difference between exchange and completion?

A

Exchange - This is where contracts are exchanged which makes the matter legally binding

Completion - This is where legal ownership of the property is transferred

21
Q

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?

A
  • 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
22
Q

What abortive fees would you typically negotiate in your terms of engagement?

A
  • 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

23
Q

Give some examples of the different forms of purchase vehicle?

A
  • Special Purpose Vehicle
  • Offshore unit trust
  • Joint Venture between two or more parties
24
Q

What is a condition precedent?

A
  • A clause within a contract that must be satisfied before completion
  • Example would be achieving planning consent
25
Q

Once Heads of Terms have been agreed, what do the solicitors draft?

A

Sale and Purchase Agreement (SPA)

26
Q

What actions are required of a purchaser ahead of an auction day?

A
  • 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
27
Q

What is the process of an Auction?

A
  • 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
28
Q

What are the four main methods of sale?

A
  • Private treaty
  • Auction
  • Formal Tender
  • Informal Tender
29
Q

What factors should you consider when recommending a method to your client?

A
  • Key drivers / objectives?
  • Level of market interest
  • Requirement for confidentiality
  • Market conditions
30
Q

What is Private Treaty?

A
  • Parties free to negotiate between themselves
  • Private matter
  • Open market
31
Q

What are the advantages of private treaty?

A
  • Confidentiality
  • Flexibility
  • Cost effective
32
Q

What are the disadvantages of private treaty?

A
  • 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
33
Q

When would you recommend use of Informal Tender?

A
  • Good level of interest
  • Confidentiality of sale required
  • Certainty of sale required
34
Q

What is the process of Informal Tender?

A
  • 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
35
Q

What is the difference between the Misrepresentation Act 1967 and the Consumer Protection from Unfair Trading Regulations 2008?

A

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

36
Q

What guidance would you need to follow when issuing terms of engagement?

A

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
37
Q

Can you tell me about the Misrepresentation Act 1967?

A
  • 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

RICS FINAL INTERVIEW COPY (21 decks)

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