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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 Ł18.8 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.
Pitfalls
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.
Tips
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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