UK: Buying Property At Commercial Auctions - Pitfalls And Tips

Last Updated: 7 August 2012
Article by James Benedick

When Jones Lang Lasalle closed its auction division in May 2012, many in the property industry were asking what the future holds for commercial property auctions. The answer to this seems to be that the future is bright with the Acutus' July auction sale raising a total of £18.8 million. There is certainly an appetite for buying properties at auction but buyers need to be aware of the pitfalls. Hopefully the tips in this article will be of use.


Never has the principle of "caveat emptor" ("let the buyer beware") been more pertinent than in respect of sales at auction. Once the hammer falls and the buyer is successful there is no going back. Against this background it is worth remembering that properties are put into auction for a variety of reasons, including a defect in the title to the property or difficulty selling on the open market.


It is vital that anyone buying at auction gives consideration to the following:-

1. Investigation

A buyer should obtain copies of the General Conditions of Sale, the Special Conditions of Sale and any legal pack in addition to the Auction Guide. It is important that these are investigated by a solicitor so that the buyer is aware of exactly what it is taking on. The buyer's solicitor will be able to review the title to the property and any leases or other documents relating to the property. If searches have not been provided with the legal pack, then the solicitor will be able to put these in place as well. Buyers should also be in regular contact with the auctioneer in advance of the auction to ensure that they are fully aware of any changes to the Conditions of Sale, the extent of the property being sold or the guide price.

2. Price

Guide prices are simply indicative of the seller's desired price and can change at any time. It is crucial when buying to have an understanding of what the property is worth on the open market and how much you are prepared to pay for it.

3. Inspection

Buyers should inspect the state and condition of the property before an auction as it is extremely risky to buy a property 'blind'. We recommend that a survey, as well as an inspection, is carried out if there is time.

4. Funds

It is standard for a deposit of at least 10% to be paid when contracts are signed immediately following the successful bid for a property. The buyer will therefore need to (i) have these funds readily available before the auction and (ii) be clear of its maximum bid price before hands start being raised and the adrenaline starts flowing, to ensure that it can actually afford the balance of the purchase price. The conditions of sale will determine when completion occurs, although a period of 28 days is not uncommon, and there will be no scope for the buyer to pull out. Failure to complete on the completion date will see the buyer liable for damages, interest accrued and some of the seller's solicitors' legal costs. A notice to complete from the seller will usually follow swiftly.

5. Tax

Any buyer must have a clear understanding of the position relating to tax and VAT. Whilst most buyers will be aware that Stamp Duty Land Tax will be payable following completion, consideration must also be given as to whether or not VAT is payable on the completion price. If the buyer is purchasing a lettable business and is expecting the transaction to operate as a "Transfer of a Going Concern", then it is important that the buyer elects to waive the VAT exemption in respect of the property prior to completion (or whenever specified in the special conditions of sale).

6. Title Guarantee

The principle of "Caveat Emptor" will also extend to the title covenants being given. It is becoming increasingly common for receivers to put properties into auction. In such circumstances they will do so with 'no title guarantee'. Receivers will generally have little knowledge of the property and will limit their liability. The buyer can take some comfort from the implied covenants for title it can expect, notably the property will be sold free from known encumbrances and that, if it is leasehold, the lease is still in existence. However, this is more of a risk than buying from a seller who sells with 'full title guarantee'.

7. Planning

As part of any due diligence process, it is important to ascertain that the property is being used legally and can in the future be used for the purpose for which the buyer intends All relevant planning enquiries should therefore be made to establish this. Buying property at commercial auctions can be very positive for a buyer. It is essentially a quick and easy process and can provide excellent value for money. Any buyer at auction should consider the above tips before raising their arm to bid, as the hammer could fall very shortly afterwards.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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