Auction sales are becoming increasingly popular. This is due largely to landlords selling their rented properties before they are required to spend money upgrading their rental properties to comply with more stringent rules coming in to do with energy efficiency. From 2025 rental properties will need to have an Energy Performance Certificate (EPC) rating of at least ‘C’ (although it is rumoured this may be put back to 2028 - yet to be confirmed). Property solicitors Julie West and Martin Whitehorn discuss key considerations for those buying properties at auction.
Property solicitor Julie West
ARE YOU BUYING WHAT YOU THINK YOU ARE BUYING?
Julie: With traditional auctions you are committed to buying a property on making the successful highest bid. This normally involves paying a deposit of 10% of the purchase price, which you will forfeit if you do not complete the purchase in a set amount of time – usually 28 days – so it is important to find out if there is anything about the property that might affect your use and enjoyment of it before making this significant commitment.
With auction purchases being almost entirely without mortgage funding, there are aspects an individual buyer can miss that would otherwise be picked up when buying with a mortgage. There’s no safety net.
Property solicitor Martin Whitehorn
Martin: The legal information pack about the property is usually free for prospective buyers on traditional auctions. One point to look out for is whether the information in the pack matches what you are expecting to buy, for example I recall being approached about buying a flat and garage at auction. I spotted the garage was not actually included in the sale as it was under a separate lease to the flat.
TIMEFRAMES AND ‘MODERN’ AUCTIONS
Martin: There are also other types of auctions, often described as a ‘modern auction method’. These vary but a key difference can be that you are not legally committed on making the successful bid – instead you pay a significant non-refundable reservation fee – which may or may not be in addition to the purchase price
In return this buys you a period of time in which to undertake your usual due diligence before becoming legally committed. These alternative auctions might also include a longer timescale to complete the purchase or require prospective buyers to pay upfront for the legal information pack about the property.
Julie: If you are buying with mortgage funding you must be prepared for the lender’s processes to take longer than the window you have in which to complete (usually 8 weeks). If completion is delayed, you will be liable to pay interest on the balance of the purchase money until the funding is in place and completion occurs; interest is payable at a penal rate, usually 4% above base lending rate. This can be expensive.
WHAT DO YOU INTEND TO USE THE PROPERTY FOR?
Martin: If you are looking to rent out a property then it is worth considering what work needs to be done in order to comply with the upcoming new rules that will require landlords to make energy efficiency improvements to properties. From 2025, in order to rent out properties (or maybe 2028 – date yet to be confirmed), properties will need an EPC with a minimum rating of C. Will your budget cover any anticipated necessary improvements? Is there an EPC with a C rating already in place?
Likewise, does the register of title for the property contain any restrictions against letting? You might think such restrictions would be obvious on inspection, but this is not always the case. For example, in the recent Re Turn O’Tide case, I recall a restriction on the title stated: “no building erected on the said property should be used for any purpose other than that of a private dwelling house”. This prevented the property from being used for short-term holiday lets like Airbnb, which is what the owner intended to use the property for.
On the face of it an entry providing the property may not be used for any purpose other than that of a private dwelling house would seem to have no impact on your ability to rent out a property, but entries on the register of title cannot always be taken at face value. Identifying problem areas such as this and explaining the consequences of relevant case law is an essential part of a solicitor’s advice to a buyer prior to a prospective auction purchase.
Julie: Similarly planning permission is a key point to get right regarding the proposed use. I had a client considering buying a church converted into a dwelling. However, following inspection of the auction pack and subsequent enquiries, it became clear that the former church did not have the necessary planning permission in place to be converted into a dwelling and there was no guarantee of obtaining this.
Local councils can issue enforcement notices to remedy planning breaches, and this can include an order to revert the property to a previous use. Whilst indemnity insurance can mitigate some of the costs involved, this does not compensate the buyer for the disruption and heartache involved in dealing with enforcement action.
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