It shouldn't be a hard sell. Getting your head around the known knowns and the known unknowns
Although Don Rumsfeld wasn’t talking about the sale of property when he talked about knowns, he makes an important point about knowledge. Picture the scene.
You are the proud owner of a riverside warehouse, just begging to be turned into some high end apartments, with a spot of retail on the ground floor. Or perhaps you are a developer, working with local landowners to promote their rolling green fields for much needed housing.
After months (or years) of hard work, planning permission has been obtained. A buyer is waiting in the wings. Heads of terms are almost agreed. Optimistic timescales are being batted glibly back and forth. Exchange of contracts is surely just around the corner.
Then – suddenly - a spanner in the works. The local authority is taking weeks to turn round searches. There is a restrictive covenant on the property which the buyer claims to have known nothing about. The buyer wants to rely on your environmental survey and, when this cannot be arranged, wants an allowance against the purchase price to deal with any contamination which may come to light or for you to take the liability. Before you can say "price chip", the transaction is dragging, costs are spiralling and the buyer is looking over its shoulder at the site down the road.
What can be done to minimise these apparent unknowns? The reality is that a lot of the things which crop up unexpectedly halfway through a transaction and cause chaos are actually known knowns, or at least known unknowns. In this blog, we have tried to put together a list of the dull but important things which can be done in advance, before the sale process kicks off, to enable your lawyer to sell your property as quickly and efficiently as possible. Inevitably this front-loads costs to some extent, but if it minimises delays and re-negotiations, this could be time and money very well spent.
• Heads of Terms: should be as detailed as possible and clearly spell out any unusual features of the site (e.g. restrictive covenants, agreements with third parties which will bind the purchaser). The clearer and more detailed the Heads, the less scope there is for the buyer to re-negotiate later. Clear timescales, which the seller is confident it can stick to, will allow the seller to change horses legitimately if a buyer doesn’t perform.
• Exclusivity agreement: if a buyer is likely to want a period of exclusivity, get a draft exclusivity agreement lined up ready to send them, rather than spending two weeks of the timetable arguing about who will draft it and what form it will take. Don’t let this document de-rail the timetable for the project as a whole.
• Planning: as well as collating all the relevant planning documents (planning permission, s106 agreement etc.) ready to send the buyer as part of the sale pack, make sure that you also have:
o Letters of reliance/warranties from any consultant whose work the purchaser will need to rely on, such as architects, structural engineers or environmental consultants. These should be agreed with the consultants in advance and supplied as part of the sales pack if possible.
o Copyright licences from the architects and any other designers enabling the buyer to use their plans. Without these, the buyer will be unable to construct what has been designed.
• Land ownership: a clear plan should be provided, showing the buyer exactly what it is buying. If ownership is complicated (for example where a developer is promoting land on behalf of a number of landowners) a composite plan should be prepared, showing who owns what. Any gaps, ransom strips, agreed land swaps etc. should be disclosed upfront.
• Conveyancing plans: Land Registry compliant plans will be needed showing the extent of the land being sold and any rights/restrictions affecting a particular area of land (for example land which is currently let, rights of way etc.).
• Title pack: this should go out as soon as Heads of Terms are agreed, in order to start time running. To achieve this, the bulk of it needs to be prepared in advance, with just a few updates needed once terms are agreed. The pack should contain:
o Up-to-date official copies of all the titles making up the property and copies of all the documents referred to on those titles. If key documents are missing, consider getting insurance to cover this in advance, rather than waiting for the buyer to raise this.
o Replies to standard enquiries. No one likes preparing these and they take a huge amount of time. However painful the process, getting them ready in advance, so that they can just be checked and updated once terms are agreed, will save time in the long run. The enquiries about capital allowances, in particular, often take time to answer and require specialist input from the seller's financial advisers. A set of CPESs peppered with "to follow" gives a buyer ample excuse to drag its feet, or even to insist that time has not started to run.
o Searches: if the timescale is tight, the seller should consider investing in a full searches pack to issue to each prospective purchaser. This will remove any opportunity for the buyer to plead "awaiting searches" as a reason not to exchange. The cost of a full search pack is usually between £2000 and £3000 and will need to be updated every three months, but it can be worth it in pushing through an aggressive timeline. Where the searches reveal issues, the seller should seek to head these off in advance, so that a solution can be presented to the buyer at the same time as the search results. For example, if there is potential chancel repair liability, the seller could get the relevant insurance and include this in the title pack, rather than having the debate with the buyer about whether this is necessary and who will pay.
• Title issues: where there are known issues on the title which need to be dealt with before a buyer could reasonably be expected to proceed (for example restrictive covenants prohibiting development) the seller can avoid future delays by giving some thought in advance to how the buyer will get comfortable with these. If there is an issue of interpretation, it may be worth getting counsel's opinion. Insurance options should also be investigated. Where third party consents are required, for example to satisfy a restriction on the title, the form of these should be agreed in advance and, if possible, in principle consent obtained.