Whilst auction sales offer an attractive way of buying property for many – be it investors paying in cash or buying on a buy-to-let basis or just those looking to find the right place to live for themselves and their families – they do pose a number of risks buyers should be aware of before bidding. One of the main risks associated with auction sales is that the well-known principle of ‘buyer beware’ applies and in the context of auctions, this means that even if there are any problems subsequently found with the property, buyers will still be left saddled with their purchase despite all the issues affecting it. A better (or “less worse”) variant for many in such cases is that buyers forfeit their deposit if they do pull out of the purchase after the auction.
The advantages of buying at auction are that buyers can potentially bag themselves a bargain by agreeing a price well below the going market rate. In addition, an auction offers certainty by way of committing the parties to completing after the hammer falls – the equivalent of an exchange of contracts in private treaty sales. Auctions are also preferable if one requires a quick sale as the whole transaction is much quicker than in most private treaty sales with completion usually taking place within 28 days of the auction.
A solicitor’s role will be to identify any issues with the property which may affect the buyer’s ability to use or occupy the property, or any legal issues affecting the property. Although tempting as it may seem, without instructing conveyancing solicitors to carry out the usual investigations and make the necessary enquiries of the seller before exchanging contracts, i.e. before the fall of the hammer, buying at an auction may in fact turn out to be a very costly mistake that could easily have been avoided had solicitors been instructed in the first place. Although, instructing solicitors is not a guarantee that issues adversely affecting the property will be identified, as was the position in the case below, doing so does provide a mechanism for buyers to obtain redress if there indeed is a problem that the solicitors should have advised about but failed to do so.
Bolt Burdon Kemp have recently settled a case arising from the purchase of a property at auction, which turned out to be exactly the opposite of the bargain the buyers had hoped they were getting. A negligence claim was brought against the clients’ conveyancing solicitors for failing to discover and advise about a number of issues affecting the property which resulted in the clients suffering substantial losses.
Mr and Mrs P decided to purchase a two-bedroom ground-floor flat in East London (“the Property”) as an investment at an auction organised by one of the country’s leading auctioneers, which was held in November 2006. Their bid of £111,000 was accepted. The Property was described in the auction catalogue as a “long leasehold vacant flat, suitable for letting or occupation”. Unbeknown to Mr and Mrs P at the time, the Property lacked planning permission and building regulations approvals, and there were also issues with the seller’s title as a large part of the Property being sold to them fell outside of the seller’s registered title. The latter issues were successfully resolved and did not form any part of the claim in which BBK were instructed,
The conditions of the auction (which were contained in the auction catalogue) included a special notice containing legally binding conditions which provided that:
- for the purposes of the auction, it was assumed that any buyer acted as a prudent buyer which meant that he had instructed conveyancing solicitors and without doing so, the buyer was, therefore, purchasing at his own risk.
- buyers were not to rely on the auction particulars – albeit these were prepared with reasonable care by the auctioneers – because they were based on information supplied by the seller and as such the auctioneers did not assume responsibility for errors.
- the buyers were buying with full knowledge of the issues affecting the property, having been advised to obtain professional advice before bidding.
Mr and Mrs P instructed conveyancing solicitors (“the Firm”) who they had used in the past for other property transactions. This was, however, their first purchase at auction. Mr and Mrs P approached the Firm about a week in advance of the auction. They provided the auction catalogue to the Firm but instead of advising Mr and Mrs P of the requirement to carry out the necessary searches before the auction, the Firm simply advised that the clients should come back following a successful bid after which the Firm would carry out the searches. This was incorrect advice as it meant that the clients would not have been able to rescind the contract had something come to light after exchange of contracts without suffering some loss, particularly given the conditions contained in the catalogue.
After Mr and Mrs P had secured the property at auction, the client care letter sent to Mr and Mrs P set out the work that the Firm would carry out on their behalf, including pre-exchange searches and enquiries. The purchase completed without any problems – the Firm did not identify or advise Mr and Mrs P about any issues relating to the local authority consents.
In 2011, Mr and Mrs P decided to sell the Property and again instructed the Firm. At this point, however, it transpired that the Property lacked a) building regulations consent for the works that were carried out to convert the premises from storage into a flat before the 2006 sale, and b) planning permission for the change of use of the Property from storage to residential use. Whilst further breaches were committed by the Firm, they are not central to the issues discussed here. In order to mitigate their losses, retrospective planning permission was obtained at considerable cost to Mr and Mrs P in order to allow the Property to be used for residential purposes and the only remaining issue was, therefore, the lack of building regulations consent with the cost for rectifying the problems estimated at around £55,000.
Mr and Mrs P instructed Bolt Burdon Kemp to act for them in a negligence claim against the Firm. After proceedings were served, the claim settled in Mr and Mrs P’s favour for a sum of £45,000 plus costs.
Buyers must remember that when purchasing at auction, they cannot rely on the information provided by the auctioneers being correct. Auctioneers do not check the information provided to them by sellers in detail and are usually not therefore responsible for anything that is eventually found to be incorrect. For this reason, any claim against the auctioneers is most likely to fail particularly if purchasers are on notice of auction conditions similar to those in this case. Similarly, if the terms and conditions of the auction sale provide that buyers are to rely on their own searches and to this end, they should therefore carry out their own checks before purchasing, suing the sellers for misrepresentation would in such circumstances be completely futile. Additionally, if a problem is found some time after completion, the whereabouts of the sellers may prove unknown. This will make the bringing of any claim against them nigh on impossible, unless a buyer is prepared to spend money searching for the seller and investigating their asset position.
Buying a property at an auction without really knowing what one is letting oneself into can be a risky strategy indeed. Whilst properties can be obtained for a bargain price, the contrary can prove to be the case. To avoid any nasty surprises following a successful bid at an auction, or at least to have a claim against the conveyancing solicitors in negligence should they have failed to spot any issues adversely affecting the property, one should always instruct a firm of conveyancing solicitors to carry out the necessary checks and enquiries before the auction so that you go into the auction fully armed with knowledge about what you are buying and where necessary, a buyer should instruct a surveyor if they want complete assurance about the wisdom of their investment. Better safe than sorry!