Thousands of properties are sold at auction each year with the Real Estate demand higher than ever many auction houses are boasting their growth. Property auctions are a popular way to avoid delays and eliminate the long negotiation periods. However, before heading to your local auction house to fetch a bargain, please do make sure that you are aware of the risks and consequences involved.
Topics to be answered in this article
How does an auction work?
When the hammer falls and you successfully bid at auction then you will have exchanged contracts and be required to pay a 10% deposit once the auction finishes. Exchange of contracts means you are legally bound into purchasing the property. The completion date will then typically follow within 28 days (or another specified time frame), upon which the balance of the agreed purchase price is due. You should therefore always be satisfied that the property is a good investment before making a bid.
Before you head to the auction
There are a few things you need to consider before even taking a foot into an auction room.
1. Do your research
Visit the property (if you can) and do your research. Looking at the plans provided and ensure that there are no discrepancies to the extent of the property you are looking to acquire and where the boundaries lie. Remember, if you have a successful bid you are tied into purchasing.
2. Sort your finances out
Decide on your price limit so you don’t get caught up in the excitement on the day. The period between exchange and completion is nominal. Where lending is involved it is a good idea to have this prepared in advance. On the day there are more costs to consider including reservation fees and deposits.
3. Read terms and conditions
The seller’s solicitor will have prepared a legal pack for the property being sold. This typically includes due diligence on the property to set out it’s location and condition. It is important to study the particulars carefully and understand the small print; by entering a bid you are agreeing to them.
The legal pack may contain a whole host of nasties and unexpected hiccups. Please see some key points to give thought to:
Tenure = Most properties in the UK are either freehold or leasehold. Where properties are leasehold they are held subject to the provisions and obligations of the relevant lease. The lease may encourage a ground rent, service charge, onerous maintenance obligations or only be running for a short period of time.
Restrictions = More often than not, property titles contain restrictions. Restrictions come in a variety of shapes and sizes but may impede the use of the property, any future development or require consents and impose charges.
Rights = Properties can be subject to matters benefiting a neighbouring or nearby property. For example, access rights, walkways, joint repairs and utilities. It is important to be aware of such matters both in terms of costs and responsibility.
Statutory Requirements = It is worth bearing in mind the implications of statutory requirements, not only planning and building regulations but for example environmental liability and asbestos management. The laws around EPCs are changing and the status of the property may impact how you are able to use it in the future.
Purchasing a commercial property at auction
Now you have all your finances in place and the commercial property you have your eye on, it is time to head to the auction.
Like many processes, the pandemic forced auction houses to think outside the box and provide remote online bidding. It is worth having a think whether you would be more energised amongst the hustle and bustle or happy from the comfort of your own space. Please enquire with your relevant auctioneer as to what services they offer and how their process works.
So you will need to read their terms and conditions before arriving. However, there are a few things you need to think about when you are ready to purchase the property at an auction.
Step 1 – Get there early: This may seem obvious, but you don’t want to miss the time of the auction. You want to get there with plenty of time to spare and get a good seat.
Step 2 – Check the property you are bidding on: One of the reasons you want to get there early is to check on the property you are going to bid on. Is it definitely the one you want? Has anything changed since you last saw it? Are there other properties that might be better there?
Step 3: Keep a cool head and don’t overbid: You need to set an absolute limit on what you are going to bid on. The heat of the moment might get the better of you and before you know it you are bidding way over what you can afford. Set a limit and keep to it.
Step 4 – SOLD: If everything goes to plan you will have purchased the commercial property of your dreams. So now it is time to fill in the paperwork and make it official.
How can Goughs help?
If you are looking at buying a commercial property at an auction and need help with the legal side, we are here for you. From before the auction with advise on the terms and conditions of the sale and the property itself, after the auction to provide you with a clear breakdown of the terms and title, and after completion we can deal with post-completion requirements like the applications to both HM Revenue and Customs to pay stamp duty land tax and HM Land Registry for registering the title transfer.
So if you do want some help, then get in touch with our commercial property solicitors and we can help you along the way.
