Our commercial and property litigation teams are regularly consulted when something has gone wrong with an auctioned property purchase. It might be necessary to attempt to exit; perhaps you weren’t well advised, or maybe you’ve been misled. Or, you may be the vendor dealing with a winning bidder who hasn’t paid. Whatever your situation, our team will act on these disputes across the country and will be happy to assist you. We’d love to help.
Purchasing property (land and buildings) at auction is significantly riskier than a standard residential or commercial property transaction. Buyers typically don’t have the benefit of expert advice from a conveyancing solicitor or licensed conveyancer before becoming bound to complete their purchase, as they would in a standard transaction. The legal requirements, your rights and obligations, and those of the seller when purchasing at auction are very different.
The Law of Property Act 1989 specifically excludes auction contracts from the requirement for a contract for the sale of land to be in writing. When the auctioneer requests bids on the property, he makes an invitation to treat; when you respond with a bid, you’re offering to buy the property at that price. The moment the auctioneer brings down his hammer on the winning bid, he accepts the bidder’s offer, and a binding contract is formed between the seller and the buyer, which both parties have a legal duty to perform.
It’s not unusual for buyers to discover shortly thereafter that they’ve contracted to purchase something that doesn’t meet their expectations and on unexpected terms.
Common Issues
Common issues encountered by sellers include:
- The property differs from what was described in the auction pack.
- The property is in poorer condition than detailed by the auction pack.
- There are third party rights over the property not identified in the auction pack.
- The property has rights of access.
- The right of tenure (freehold or leasehold) is not the same as understood from the auction pack.
- The terms of the sale contract in the auction pack are not properly understood.
- The seller tries to introduce additional terms to the sale contract after your bid is accepted.
- The purchase price, after accounting for additional fees, legal costs, and premiums, is higher than anticipated when you made your bid, and you can’t afford to complete it.
- The property is unmortgageable, and you can’t afford to complete.
- The seller brings forward the date for completion, but you’re unable to complete it in time.
Auction packs and sale contracts need to be read incredibly carefully. It’s not uncommon for buyers at auction to be mistaken regarding what’s included in the auction pack, which they rely on when making their winning bid.
If the correct information was provided to you, but you overlooked its impact or didn’t take expert advice before making your bid, then there’s likely nothing you can do to escape the terms of the contract. In this case, you’ll be required to complete it.
The situation can be different if something untrue was included in the auction pack. This might amount to a misrepresentation, entitling you to rescind the contract or claim damages.
What is a Misrepresentation?
The law of misrepresentation is primarily governed by the Misrepresentation Act 1967 and common law principles.
A misrepresentation occurs when a party to a contract makes a false statement of fact (for example, the state of the property) or law (for example, the time between auction and completion) that induces the other party to enter the contract. A misrepresentation can be innocent, negligent, or fraudulent.
Misrepresentation of auction property occurs when false or misleading statements about a property’s characteristics are intentionally or unintentionally made to induce a purchase. These misrepresentations can vary widely, covering aspects such as the property’s physical condition, legal status, permitted uses, zoning classifications, or liabilities like undisclosed debts attached to the land (such as service charge debts) or liens.
Have You Made a Winning Bid Based on a Misrepresentation?
If you think the property you made a winning bid on was misrepresented to you and want to avoid completing the purchase or explore a claim for damages if you’ve already completed, you should take immediate legal advice.
For a misrepresentation claim to be successful, you must demonstrate that the misleading information was a crucial element in your decision to make that bid and that you relied on that information when doing so. You need to preserve the evidence that you have available.
If you can prove the misrepresentation, you might be able to rescind (cancel) the contract. Rescinding the contract effectively nullifies the transaction, and you may be able to get your deposit back together with other damages compensatory damages.
Not every error or omission amounts to a misrepresentation. Minor discrepancies that do not affect the overall value or use of the property are unlikely to meet the threshold required to overturn a sale.
Can Auctioneers Escape Liability?
In simple terms, yes. They deal with these types of transactions all the time, and their terms and conditions are carefully drafted to exclude liability for anything relating to the property, the contract, or the auction pack. They are simply the seller’s agent, so any claim you might have is likely to be against the seller, not the auctioneer.
The Importance of Taking Legal Advice on Property Auctions
Understanding the importance of taking legal advice on property auctions cannot be overstated. Crucially, we don’t provide that advice—we aren’t transactional lawyers, and we only deal with these situations when something has gone wrong and needs fixing. Property auctions, while offering potential bargains, still involve paying significant sums and taking substantial risks that can have significant implications for your commercial position.
Pre-Auction Due Diligence
Before participating in an auction, conducting due diligence is imperative. It goes beyond simply reviewing the auction catalogue; it includes a thorough inspection of the property, obtaining a comprehensive title report, and possibly engaging legal and real estate experts. These experts can help decipher complex legal terms, identify pitfalls and issues, and advise you on the local market.
Frequently Asked Questions
Is a Property Auction Legally Binding?
Yes, a property auction is legally binding. Once the hammer falls and you are the highest bidder, you’re bound to pay the deposit and commit to proceeding to completion. You need to understand the terms and conditions of the auction before entering it and bidding.
Can You Get out of a Property Auction Contract?
Exiting a property auction contract is challenging but possible under certain conditions. Obtaining legal advice from specialist litigation solicitors is critical to navigating this complex process, as the legal landscape is heavily tilted against buyers at auction.
Final Thoughts
Bidding on property at auction is high risk. It requires careful consideration and preparation to properly assess those risks and make more informed decisions before committing your capital to the transaction.
If you find yourself on the wrong side of an auction transaction for any reason, our specialist commercial and property litigation teams will be happy to assist you in minimising the issue, protecting your position, and/or taking any opportunities to maximise your situation. If you are impacted by any of these issues or are concerned you might be, do not hesitate to contact Helix Law now.