Buying Property at Auction? What You Need to Know
by Justine Walker, Graduate Legal Executive, Commercial Department
Buying property at auction has increased in popularity over the last few years, with dozens of auctions taking place every month. Many people are now choosing to buy their property this way as it is fast – sales typically complete within 21-28 days of the auction. There is also the chance that you can land a great deal.
It is easy to get carried away at the auction but it is important to remember that following a successful bid, you have entered into a legally binding contract and you won’t be able to withdraw without financial repercussions.
For peace of mind we recommend having a solicitor review the legal pack beforehand, as such a review may highlight potential problems which can be addressed or avoided before committing to buying property at auction. The pack will be available on the auctioneer’s website and includes title information, either in the form of a title register and plan (for registered land), or copy deeds (for unregistered land). The pack also includes any searches that the seller has undertaken, such as a local authority and environmental searches.
For example, John is a director of a company that is expanding. John has found the perfect property to renovate and use as the company’s new office. After opening, John is approached by a third party who has the benefit of a restrictive covenant on John’s title that says the property is not to be used for business purposes and that if John does not close his office, they will take enforcement action. John has now incurred significant expense in renovating the property for his business only to find out that he is not permitted to use the property in such a way. This could have been avoided with a professional review.
In another example, Sarah is a commercial property developer who has purchased a plot of land and intends to develop the land into an industrial estate. Sarah did not review the legal pack and is not aware that the land is at high risk of subsidence and contamination. As the owner of the land, Sarah could now be liable for the cost of cleaning up the land. This again, could have been avoided if Sarah had instructed a solicitor to review the legal pack.
Having the auction pack reviewed before buying property at auction is extremely important if you are reliant on a mortgage or finance to purchase the property. Any funding arrangements need to be agreed before the auction. If you do not have a review, finance could be withdrawn if it later transpires that there is a defect with the property, leaving you to try and fund the purchase through other means.
It is important to note that, following a successful bid, the property must be registered into the name given on the auction memorandum of sale. You can’t register the property into joint names if only one name is given on the memorandum. The purchase would need to be completed in the sole name first and then later transferred into joint names. This could cause issues if you are obtaining a mortgage, as those named on the mortgage offer and deed will need to be named as the registered owners of the property.
At Fraser Dawbarns, we strive to help our clients find the right deal for their needs and can assist you when you are buying property at auction. We understand that sometimes there is not much time between a buyer finding an auction lot that they are interested in and the auction itself. Therefore, we are happy to review auction packs at short notice.