11 July 2008
Buying at auction – the pitfalls
Whilst buying a commercial property at auction may sound attractive, it may bring problems to unprepared buyers.
The biggest difficulty which arises for a prospective buyer at auction is time, or rather lack of it.
Unlike the usual transaction, when a buyer and its advisers have the time from receipt of contract and supporting documentation to put in hand searches, additional enquires and negotiate any necessary contractual terms, the ‘legal pack’, as prepared by the seller’s solicitors and the auctioneers, whether as a paper pack or posted on the website, is often not available until only a short time before the auction date and sometimes not until the auction date itself. This means there is only limited time to ascertain a clear picture of the property.
It is sometimes the case that properties with inherent problems are put into auction and it is not unusual to find properties which are landlocked or where the seller does not have clear title or where the lease is deficient in some way.
The legal pack usually consists of basic title information, the contract (to which no amendments will be permitted), replies to standard enquiries given by the seller and searches, which may well be out of date. If additional information comes to light, the auctioneer can make last minute alterations and oral statements advising prospective bidders of the changes and in the buzz of the auction room it is easy to miss such announcements.
The binding and enforceable contract for sale and purchase is of course made at the fall of the auctioneer’s hammer. Although there have been cases where buyers have succeeded in claiming misrepresentation made prior to the auction, it is much more likely that a seller can successfully rely on the buyer being fixed with knowledge provided in the pack and in any last minute amendments.
The sale is governed by the auctioneer’s own conditions as well as the standard property conditions, which are often varied to allow for protections for the seller such as the holding of deposit by auctioneer as agent, restrictions on raising requisitions, prohibition of sub-sales and reimbursement of some of the seller’s fees.
A prospective buyer should:
- Be cautious.
- Make a thorough inspection of the property of interest and raise as many enquiries as time will allow of the agents and the seller’s solicitors.
- Arrange for a survey to be undertaken.
- Ensure financial arrangements are in place not only for payment of the deposit but also the balance of the purchase price.
- Remember that whilst the buyer is bound from the fall of the hammer, lenders will make their own title investigations and may refuse to lend.
- Instruct a legal advisor as soon as possible. If necessary and possible, ask your legal advisor to attend the auction.
For advice, contact Celia Watts on 01483 887655.