Avoiding a bidder aftertaste: purchasing commercial property at auction.

Yasmin Dehghani a solicitor in our Commercial Property team provides essential advice for those looking to purchase a commercial property at auction in Essence November issue.

If you have ever considered purchasing a commercial property at auction, you may already be aware of the advantages. However, it can be a double-edged sword if sufficient due diligence is not carried out. One thing you must pay close attention to is the legal pack. The legal pack could reveal nasty surprises, such as additional costs, or a shorter completion period.

The key documents in a legal pack, as well as some of the basics to look out for are as follows:

Special conditions

These are prepared by the seller’s conveyancer, and set out the conditions that apply to each lot, in addition to the auction conditions. Check for new restrictive covenants being imposed, a requirement for the buyer to reimburse the seller for the cost of providing searches, or a requirement for the buyer to pay various premiums to the seller. If the property is tenanted, check if you are required to pay any arrears owed by the tenant to the seller.

Title documents

Assuming the property is registered, this will consist of a title register and plan administered by the Land Registry, and copies of documents that the register refers to. Check that the seller’s name and the property address match those on the property register. It is also important to check the title plan to ensure that it reflects the position on the ground, and what is being sold. In the case of a leasehold property, check that there is no discrepancy between the extent of the property as described in the lease and the property on the ground.

Replies to enquiries

These are a standard set of replies to enquiries that the seller’s conveyancer provides. These may reveal details of any occupiers, the position with regard to planning and any disputes relating to the property. If the property is leasehold, the replies may also reveal whether there are any arrears or exceptionally large expenditure to be incurred. These will also confirm whether any VAT is payable on the purchase price.

Searches

The usual searches are the local authority search, drainage and water enquiries, environmental data search and chancel repair liability, although not all of these may be included. Check that the search results are satisfactory, having regard to your requirements and intended use for the property. In particular, check the local authority search, which may reveal outstanding notices against the property, building regulations consents and planning charges. The environmental search should also be checked for any likelihood of the property being contaminated which could leave you liable to extensive remediation costs.

Planning

The seller’s solicitor may include planning documents. Check whether there are any planning issues that will prevent the property being used for its current or intended purpose. If copies are not enclosed, they may be available on the local authority website.

Survey

We would recommend that you carry out a survey to identify any hidden defects that the property may have. This is particularly important as if there are any defects, you will be liable to repair them.

In a nutshell, an auction purchase takes place under the assumption that all documentation and conditions have been read and understood. It is strongly recommended that you carry out a full investigation on any property which you may be interested in. An integral part of such an investigation is checking the legal pack and obtaining the advice of your conveyancer as to its contents if you are unsure. Once a property is purchased at auction it is too late to raise any enquiries and so advice should be sought well in advance of any auction.

The contents of this article are intended as guidance for readers. It can be no substitute for specific advice. Consequently we cannot accept responsibility for this information, errors or matters affected by subsequent changes in the law, or the content of any website referred to in this update. © Mundays LLP 2019.

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