An increasing number of people are buying at auctions. If you are considering buying at auction it is important that the legal paperwork is checked correctly. This guide highlights some of the potential legal pitfalls and problems buyers may face at auction and also suggests a number of ways to minimise or avoid them.  

Practical Points before the Auction 

• View the property and the area before the auction at different times of the day. It is also worth viewing the property after exchange (if you are a successful bidder) to check the property is vacant, before completing.
• Check and compare prices in the area.
• Instruct a surveyor to carry out a survey of the property to ensure that the property is structurally sound.
• In most auction contacts the buyer has to complete 28 days after the auction. If a buyer is reliant upon mortgage finance the buyer should therefore arrange this prior to the auction. Failure to complete at auction may result in the buyers 10% deposit being forfeited. In addition if the seller then re-offers the property at a subsequent auction and does not receive an offer equivalent to the offer made by the original contracting buyer then the seller can recover the difference in value from the original contracting buyer.
• Set your financial limit and stick to it.
• Instruct a solicitor prior to the auction. we have extensive experience in acting for buyers and sellers of auction properties and we will be happy to assist.
• Discuss with your accountant the most tax efficient way of buying properties at auction be it in individual names or in a company name.

Title 

Title to a property will show a number of things including the following:

• Who the owner is.
• The price the owner paid for the property when they bought it.
• Whether there are any rights which benefit or affect the property.
• Whether there are any restrictions or covenants which affect the properties use.
• A plan will show the extent of the property (normally edged in red).

These matters will all be looked at in turn but it is also worth highlighting that the form of title itself can vary. The best form of title is Title Absolute. Buyers should be aware of other classifications of title such as Good Leasehold or Possessory. This should be checked carefully by the buyers solicitor prior to auction particularly when mortgage finance is required.  

1 & 2 ) Price and Owner 

Where the owner of a property is a company the buyers solicitor should carry out a company search to make sure that the seller is solvent. Note the price paid for the property and when the seller bought it. In some instances properties are purchased and then sold within a short space of time which may indicate that there is a problem with the property. Where buyers are purchasing with a mortgage solicitors are required to notify a lender if the property has been owned by the seller for less then six months.  

3 ) Rights  

Rights granted benefit the owner of a property e.g rights of way over a private roadway. Buyers should also be aware that rights can be reserved in favour of others e.g, adjoining landowners. An adverse reserved right would be a neighbour having access through the sellers garden to access their property. Such reservations of rights may affect future salebility.  
 

4 ) Restrictions and Covenants  

Restrictive covenants often appear on title to property. Often they were imposed at the time that the property was constructed and are intended to maintain the appearance and integrity of buildings and surrounding estates e.g a restriction that a property is to be used as one private dwellinghouse in the occupation of one family only. Such restrictions can hinder future development of the property and should be investigated carefully prior to auction.  

5 ) The Title Plan  

Buyers should make sure that the boundaries of the property are in accordance with the title plan. There can sometimes be discrepancies.  

Searches 

Local authority searches are often available as part of an auction pack. Buyers should be aware that such searches only cover the property concerned and not properties in the surrounding area. It will not reveal planning consents granted in respect of adjoining properties An additional search will reveal planning applications in the surrounding area Your solicitor can arrange this.  

The Local authority search will also reveal the planning history of a property. If the buyer is aware that there have been alterations to the property they should also check whether planning and/or building regulations approval was required for such alterations. Where no consents have been obtained it may be possible to arrange indemnity insurance (where certain criteria are met) to protect against potential enforcement action being taken by the local authority. This will not however insure against poor workman ship.  

Local authority searches will reveal whether a property is in a conservation area or is a listed building. If so it may restrict intended development. Also, adverse entries can appear on the search result e.g enforcement notices, compulsory purchase orders or a public health notice. Any such entries should be investigated fully prior to committing to purchase.  

Contract 

Auction contracts set out the terms on which a successful bidder buys a property. This should be checked carefully. The contract will consist of various conditions;  

A) General Conditions (these usually cover the current Law Society Standard form of Contract for sale of property)  

B) Additional General Conditions (these may be additional conditions that the vendors solicitors stipulate where they are acting for one seller who is selling numerous properties at the same auction)  

C) The Special Conditions (These are additional conditions that are particular to the transaction and imposed by the sellers solicitors)  

Summarised below are a number of examples of clauses that can catch out uninformed buyers. Many will appear in the Special Conditions of sale.  

1. Positive Covenants. A positive covenant is an obligation on the buyer to do something e.g erect a large fence around the boundary of the property.
2. Restrictive Covenants e.g restriction on use as single private dwellinghouse.
3. Claw back/Overage e.g sale of a parcel of land that does not have planningconsent for development. Should the buyer obtain planning consent for development in the future they will have to pay the seller a proportion of the increase in the value of the land as a result of the planning permission having been granted. 
4. Sale and Lease back e.g sale of freehold building with the commercial unit on the ground floor and residential on the upper floor/s. On completion the buyer must grant back a lease to the seller of either or both the commercial or residential units.
5. Contributions towards sellers cost. For example 1% of the purchase price.
6. In respect of leasehold properties there is often a condition that buyer has to settle any arrears of service charge or ground rent. Buyers should check whether a property is sold with vacant possession. If it is not sold vacant and is sold subject to a tenancy, the tenancy should be investigated in full. Certain tenants have various statutory rights to remain in the properties for long periods of time.
7. Tenanted Properties. Buyers should check whether a property is sold with vacant possession. If it is not sold vacant and is sold subject to a tenancy, the tenancy should be investigated in full. Certain tenants have various statutory rights to remain in the properties for long periods of time.

Costs Summary 

1. Buying the legal pack (around £20.00 each)
2. Auctioneers fee (this varies but will be approximately £250.00)
3. Deposit (10% of purchase price payable on the day of the auction)
4. Balance of funds (normally 28 days after exchange)
5. VAT (check whether this is payable on the purchase price)
6. Arrears . Normally leasehold arrears of service charge
7. Buyer’s solicitor’s fees (speak to us for an estimate of fees).
8. Contributions towards sellers costs (where applicable in the contract)
9. Local Search (approximately £200.00)
10. Stamp Duty (this will be 1, 3, or 4% of the purchase price depending on the value of the property. Please speak with us for specific figures or use our online calculator).
11. Land Registry Fees (please speak to us for specific figures)
12. Repayment of Local Authority Grant (solicitors instructed should carefully check the local search result as such costs can be substantial).
13. Planning document fees.
14. Clawback/Overage Payment (this can vary and is normally payable after completion).
15. Indemnity Insurance (this will vary depending on the nature of insurance required).
16. Survey (this will vary; an approximate guide would be £400.00 - £600.00 for a Homebuyers Report).
17. Mortgage Broker fee for arranging mortgages (this will vary depending on which broker is used).
18. Mortgage Arrangement fee (this will vary depending on the lender).

Fees 

As part of our service we can prepare reports for bidders prior to auction. Our charges are £250.00 plus VAT for a leasehold report and £225.00 plus VAT for a freehold report. If you are successful in purchasing a property at auction we will then charge an additional £300.00 plus VAT to complete the transaction and registration formality