At Kenneth Elliott + Rowe solicitors we specialise in auction sales for residential and commercial clients. In many cases our fees are paid by the buyer and as a result we are often offering a “free”* service to our clients. We hope to provide practical legal advice on how best to present your property for sale at auction and maximise the sale price.
Why sell at auction?
You may have already decided on the method of sale however, it is useful to have an understanding of the types of property that are particularly suited to auction sales, and the advantages and disadvantages of selling property at auction.
What properties should be sold at auction
There is no limit on the type of property which may be sold however the following properties may be particularly suited to auction sales:
- Unusual properties that are difficult to value.
- Properties that require a lot of renovation work.
- Probate Properties.
- Properties with short leases.
- Properties that are being sold by a mortgagee following repossession.
- Tenanted properties, including those that are subject to the tenants’ right of first refusal under the Landlord and Tenant Act 1987 (LTA 1987).
- Properties of low or mixed quality. The seller may be able to entice bidders by setting low reserve prices on the poorer quality properties in the hope that those bidders may also bid on the better quality properties with higher reserves.
- Properties that require planning consent for their use.
You should take advice from an auctioneer as to the suitability of the particular property they wish to sell. You should also consider the other types of properties that will be included in the auction.
Advantages and disadvantages of selling property at auction
What are the pros and cons of selling at auction?
The main advantages of selling property at auction are:
- Certainty. Generally, the contract is binding when the hammer falls and the buyer is obliged to complete on the date stated in the sale contract. There can be exceptions to this for example of the sale is conditional upon an event – commonly sale of a leasehold property that requires landlord’s consent to an assignment, the auction contract will usually be conditional on obtaining consent.
- Speed. As contracts become binding at the auction, there is no opportunity for the buyer to attempt to negotiate the terms of the contract. Such negotiations can cause delay in a sale by private tender, but are avoided by selling at auction. Completion usually takes place within a month of the auction.
- Price. For some properties, an auction sale can achieve a higher price than a sale by private tender.
The main disadvantages of selling property at auction are:
- Cost. The seller will be required to pay all or some of the auctioneer’s fees even if the property does not sell.
- Higher Fees. In addition, if the property is sold, most auctioneers charge a commission that is higher than would be charged on a sale by private tender.
- Price. For some properties you may also find that you do not achieve the price you would do via an estate agent (although you can set a reserve price which may minimise this risk).
Preparing for the sale
After you have instructed the auctioneers you need to think carefully about the preparation for the legal pack. If you want a good quality pack (by that we mean including searches and additional information such as leasehold pack you need to give time for the pack to be prepared and then considered by the potential bidders. Ideally you want the pack to be with the auctioneers for distribution on their website at lease 2 weeks before the auction for simple transactions (most residential) and longer if more complex/higher value sites.
The length of time needed to produce the legal pack varies. It will depend on:
- Deeds. Most properties are registered and we have direct access to obtain and download copies of your title deeds instantly. However if the property is a probate sale or a sale of a property which has been owned for a great many years you need to check it is not unregistered land. If so we need to obtain the physical deeds from their current location – typically stored at home, with a solicitor or bank/building society to enable us to prepare the title.
- Searches. Search times vary in each area due to the different ways local authorities deal with the searches. Some turn a search around in a day others several weeks if not months. We can usually check on turn around quite quickly so call us to establish a time frame before you commit yourself to a specific auction date.
- Leasehold Pack. If you are selling a flat which is in a block managed by a landlord or managing agent who collects service charge, insurance etc it is sensible to obtain a leasehold pack from them to sell the property. Primarily this is required to satisfy a potential buyer that there are not substantial arrears of service charges and there are no major works in the pipeline which are going to result in a large bill when they purchase. Some landlords/managing agents are notoriously difficult to deal with – they will also charge for the pleasure of preparing the pack and it usually takes a good few weeks to obtain these packs. We would therefore recommend a month gap to obtain such information.
In summary call us to discuss your circumstances – it may be possible to produce a pack is less than 2 weeks for a freehold property in most areas but for leasehold we would recommend a month as a rule of thumb.
Approving the auction catalogue
You will need to approve the auction catalogue prepared by the auctioneers and contains the basic particulars of each property (or “lot”) that will be offered for sale at the auction.
The information in the auction catalogue should include:
• The full address of the property.
• A photograph of the property.
• The tenure of the property (freehold or leasehold).
• Brief details of any leases or tenancies to which the property is subject, including annual rents and unexpired lease terms.
• The guide price for the property. You should obtain professional valuation advice on the guide price.
• Our contact details.
It should also state the energy performance indicator from the energy performance certificate (EPC).
You may approve the catalogue entry before you instruct us formally. It is important that this is checked carefully as you could be misrepresenting the property leaving yourself open to a claim or worse putting potential buyers off by not describing it accurately.
If there is a mistake is found in the auction catalogue, the auctioneers should be notified as soon as possible. If it is not possible to correct the mistake before the catalogue is printed, the correction will be printed in an addendum.
It is particularly important to check the accuracy of the auction catalogue including the description of any letting arrangements. This is highlighted by a case of Pankhania v London Borough of Hackney  EWHC 2441 (Ch) where the auction catalogue described the property as being “let to NCP car parks on a monthly licence”. In fact, there was evidence that the selling agents were aware that the “licence” was almost certainly a tenancy protected under the Landlord and Tenant Act 1954 and that NCP intended to assert their rights against the eventual buyer. The High Court held that damages were payable to the buyer, who had relied on the misrepresentation in the auction catalogue when bidding for the property.
Drafting the auction sale contract
This is our job but it is helpful for you to understand the basic position.
The sale contract for a lot in an auction sale can comprise some, or all, of the following documents:
- General conditions of sale. The general conditions of sale are the same for all of the lots in the auction and may be printed in the auction catalogue.
- Extra conditions of sale. The extra conditions of sale, which are produced by the auctioneers, vary the general conditions in relation to all the lots in the auction. As with the general conditions, the extra conditions may be printed in the auction catalogue. Not all auctioneers produce extra conditions of sale.
- Special conditions of sale. The special conditions of sale, which are produced by the us, setting out the conditions that apply this lot (see below).
- Addendum. An addendum may be used to:
• correct the particulars in the auction catalogue;
• correct information in the legal pack; or
• provide additional information about a lot.
General conditions of sale
The auctioneers publish the general conditions of sale that will apply to all of the lots in the auction. The general conditions are usually based on a published set of conditions such as the RICS: Common Auction Conditions (Third Edition) (CAC) or, less frequently, on the Standard Conditions of Sale (Fifth Edition) or the Standard Commercial Property Conditions (Second Edition).
Special conditions of sale
The special conditions of sale set out the conditions that apply to an individual lot and are prepared by this firm.
The special conditions will usually include details about the lot, including:
- the address of the property;
- the tenure being offered for sale;
- the title guarantee being given;
- any rights that are being sold with the property;
- any rights that are being reserved to the seller; and
- whether the property is being sold with vacant possession or subject to tenancies. If the sale is subject to tenancies, these should be listed in a schedule attached to the special conditions.
- Any variations to the general and extra conditions.
The above are always included but in addition you may want to add it specific additional special conditions. For example, these may:
- impose new restrictive covenants on the property (particularly relevant if you are retaining neighbouring land);
- require the buyer to reimburse the seller for the cost of providing search results and/or the leasehold information pack in the legal pack.* The seller is required to provide any EPC free of charge, so this cost should be excluded from such a special condition;
- require the buyer to reimburse the seller for the cost of preparing the legal pack and the conveyancing costs on sale. This will mean our costs are paid by the buyer not by you hence our comment above about a “free” legal service*. Obviously potential buyers if they read the conditions carefully may well take our fees into account with their potential bids for the property but in theory you will be no worse off because they are only going to deduct the cost of the fees which you would be paying anyway. However many buyers may not read the special conditions carefully and therefore they miss these legal costs until advised by their solicitor when dealing with the post auction formalities (we know this because we also deal with auction purchases where our clients did not consult us on the pack before buying and we have to break this news to them). If you look through auction packs you will see it is not uncommon for this type of condition to be included in auction.
- in relation to a tenanted property, require the buyer to pay to the seller any arrears of rent owed by the tenant as at the date of the auction.
- in relation to a property which you do not want to clear of rubbish and other unwanted chattels e.g. loose furniture – you will want to include a special condition stating that these items will remain on completion otherwise you may not be giving vacant possession (because the courts have held that this includes clearing rubbish in some cases).
* Note: you will not recover the legal, search cost and leasehold information pack cost if the lot does not sell at the auction although most search/leasehold packs have a ‘life’ of 6 months so it may be they can be used in a subsequent auctions/sales. There is therefore a risk that you will have to pay for these disbursements so we cannot guarantee a completely “free” service.
Producing the legal pack
A professional looking legal pack often helps you to sell. We will prepare the legal pack, which should include:
- The special conditions of sale.
- Copies of the title deeds.
- Copies of any leases or tenancies to which the property is subject.
It can also include:
- Searches e.g. local, drainage and environmental searches. We would recommend searches are obtained in all cases. If we obtain the search pack we will by default include a provision to recover the cost of the pack in the special conditions.
- Leasehold Information Packs from the Landlord / Management Company. Again we would recommend a pack is obtained. You may wish to provide in the special conditions that the buyer will reimburse the seller for the cost of the pack.
- Replies to standard form pre-contract enquiries.
Replies to standard form pre-contract enquiries – what are they?
These are enquiries which you usually see on transactions asking about matters such as disputes or notices relating to the property. It also deals with planning and building regulations.
There are two basic types of forms currently used for sales. For residential properties, we would recommend completing the Law Society Property Information Forms.
For commercial properties, usually we would recommend completing the Commercial Property Standard Enquiries (CPSEs). These forms cover different scenarios e.g. let property or vacant property and we would need to advise you on the best forms to complete. Again this would depend on the nature of the lot and the sale price proposed (the higher the price properties would warrant more detailed responses).
In both cases you may want to consider adding a fixtures and fittings list or a special condition about leaving the property in the current condition (including any rubbish or unwanted furniture).
However there is a third option. You are not obliged to reply to enquiries at all. Obviously if you do not the potential purchasers may consider that there is an issue or you may be hiding something for example a dispute which may affect their decision to bid. However if you do not want to make any representations (for example if you know little about the property because you have inherited it or it has been let long term) you may be best advised not to reply to any enquiries rather than trying to limit your replies with disclaimers (e.g. not so far as the seller is aware). This is because the Court of Appeal has held that a seller has a duty to check files and carry out reasonable research into its records to ascertain the answers to enquiries. This effectively means that the fact that you are actually aware of information which ought to be included in the replies at the moment in time you reply to enquiries is irrelevant. You must check whatever information you have concerning the property. This may involve enquiries at the local authority or asking questions of the solicitors who acted on your purchase. If the buyer discovers non-disclosure or misrepresentation after auction, it is open to him to ask the Court to rescind (cancel) the sale contract and request that you take the property back and repay the sale proceeds.
For this reason you will see many lots sold without any formal replies.
If you successfully sell at auction – what happens next?
The auctioneers will send the signed memorandum of sale to us following the auction. We will liaise with the Buyer’s solicitors to agree completion and receive funds. We will need to draw up a completion statement showing the balance due on completion including any apportionment of rent etc.
The completion date will often be 20 working days after the date of the auction.
Most auctioneers will deduct their fees from the deposit before sending the balance to us.
We will deal with the completion and distribute the funds, repaying any mortgage on the property, on the day of completion. Any disbursements (e.g. search fees) which you have paid up front for will be reimbursed to you at that point also.
What are your charges?
Generally we will charge 0.6% of the sale price plus VAT for sales at auction (subject to a minimum fee of £600). As noted above this cost (and the below disbursements) can be recovered from the buyer if you wish.
Disbursements will vary according to the type of property. Apart from the title deeds which cost around £6-£15 typically there may be:
Search pack: varies by area and property type. For residential property budget £250-£350, for commercial budget £350-500.
Leasehold Information Pack: varies by Landlord. Budget £100-300.
We will require a payment on account of the disbursements before we commence work. Our fees are paid from the sale proceeds. We will refund any recovered disbursements from the buyer on completion.
How do we instruct you?
If you want to discuss the moving forward with a auction sale please call Mark Sadler on 01708 757575 or email email@example.com for further information (or use our contact us form).
We can then:
- start the process of coordinating your auction sale
- provide you with a firm timescale for the auction pack
- send you the initial auction questionnaires to complete