Purchasing a Property at Auction? Here are some legal matters to consider.
Buying a property at an auction is a great way to acquire both commercial and residential buildings, often at below-market rates.
Many people will see these properties as an investment opportunity, either to make modifications for rental or resale or as a blank canvas to demolish and start afresh.
Either way, while the process can often seem straightforward, there are many pitfalls to be aware of and it is quite easy to make a legal mistake that can be very costly, so below, we have included some points to consider when buying at an auction.
Instructing a solicitor to review the auction pack.
Always instruct an experienced property solicitor to review the auction pack at least a week before the auction. Far too often, people bid on a property without seeking prior legal advice, only to find there are issues which can be very expensive (and timely) to try and fix.
As part of the auction pack, your solicitor can also review the auction contract to advise of costs that an inexperienced auction buyer would not expect (buyer’s premium, seller’s legal fees, etc.) all of which will need to be taken into account when considering available finances before deciding to bid.
Who is the seller?
When considering purchasing a property at auction it is worth understanding who is selling the property via the auctioneer. In most cases the seller will be an individual or company that has decided to sell the property at auction as they believe this will be the way to get the best price for their asset, but it is becoming increasingly more common, given the current financial climate, to see receivers acting as agents for a seller, who may have become bankrupt/insolvent or have defaulted on their mortgage payments. An experienced property solicitor can check before the auction that the correct paperwork has been provided as part of the auction pack, or advise of any title issues that will need to be dealt with concerning bankrupt individuals or insolvent companies.
Is the property currently let?
If the property is leasehold or currently let, then you need to know if there are any outstanding payments due under the lease or if there are arrears from the tenant that the buyer will need to take on.
It is prudent to have this information pre-auction and by working with a solicitor early on in the process, you can prevent legal problems further down the line.
Funding
A buyer should have the funds for the purchase readily available at the time of the auction.
If they are financing the purchase with a mortgage or bridging loan, they should ensure that this is all in place and that mortgage offers/facility agreements have been issued and funds are ready for drawdown (as far as is possible) at the time of the auction.
If funds are not available then there may be delays caused by lenders or their solicitors when undertaking the required due diligence, hindering the acquisition process and potentially leading to the contract being defaulted.
21-28 Day completion window
The date of completion following a successful bid at auction is normally fixed (21-28 days) so it is vital that between exchanging (following a successful bid) and the date of actual completion, solicitors are promptly instructed, all pre-completion matters are attended to and monies for the purchase are on the solicitor’s client account, this includes the solicitor’s requirement to undertake source of funds investigations into the purchase monies.
Failure to complete on the required date may result in a ‘Notice to Complete’ being served by the seller’s solicitor.
This will normally allow 10 working days for the completion to take place before the contract can be withdrawn by the seller. During this time, default interest and additional seller’s legal fees will be incurred.
After this time, the seller will be entitled to withdraw from the transaction, retain the deposit paid as well as seek damages from the buyer for not complying with the auction contract.
Why use Peter Lynn and Partners Solicitors when buying at auction?
- Firstly, we can act for clients who wish to purchase commercial or residential properties at an auction. We are also happy to act for clients who wish to sell at auction and can also prepare the sale packs, liaising with the estate agents/auctioneers.
- Auctions have moved online (in the main) following Covid-19 and are becoming increasingly common due to the quick turnaround times for completion, as opposed to a standard conveyance. Therefore it is vital you have a legal partner who can move equally fast without sacrificing on quality – a core strength of our firm.
- Sometimes buyers can get a very good deal, but it is important that they instruct a solicitor to review the auction pack to make sure they are not taking on a property that could be a burden or more expensive than it would initially seem. We have extensive experience in providing this advice helping you to make an informed investment decision.
For more information, please contact our Property Team on 01792 450010 or email [email protected] to arrange a free initial meeting.