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Purchase of Properties, especially Flats etc at ‘Auction’ in Scotland

The usual way a property is bought in Scotland involves the would-be purchasers getting their solicitor to put in a written offer to the sellers’ solicitors; and, if that offer is accepted, a contract for the sale and purchase is then independently negotiated between the sellers’ solicitors and the purchasers’ solicitors, commonly known as “missives”.

This is very different in many vitally important respects to purchasing a property at a public ‘auction’ or, ‘public roup’.

I would invite you to consider some of the differences which I endeavour to illustrate here.  In my experience we commonly find the first time we hear from clients is when they somewhat sheepishly advise us that he have been to an auction and paid a deposit for a property.  By that stage it will be too late for a solicitor to “fix” many of the things which may be wrong with the property.

Buying and selling property in Scotland.

Purchases and sales regulated by solicitor written contract, known usually as “missives”.

The seller is obliged to give the buyer a ‘good title’ to the property.

This means:

(i)       The seller undertakes to give the purchaser ownership of the whole property described in the contract which will be free from challenge – “a good title”;

(ii)     The seller undertakes that the title will be free of any mortgage or other security – “an unencumbered title”

(iii)    The seller undertakes that there are no unusually onerous conditions in the title; and often that the systems and appliances in the property are in working order.

(iv)   The seller undertakes that there are no leases or occupancy issues with the property – “vacant possession”

(v)     The seller warrants that there are no outstanding charges or liabilities in respect of the property including “Notices of Potential Liability for Costs” about which more below.

Usually all these requirements (and many more) will be set out in full in the terms of the missives But, even if they were not expressly set out in writing, many of the conditions concerning ‘good title’ would, in any event, be implied by law.

Sales and purchases at auction

These are now happening quite regularly. Broadly speaking the ‘auction’ happens rather like an auction of any moveable property like a car or furniture, in that the sale and purchase take place in one fell swoop in an auction room – except, of course, whereas the car or table or whatever it may be at a conventional auction, is physically present in the auction room, that cannot be so with a property. Essentially though both forms of auction sale operate in much the same way.

Purchasing a property at auction has many pitfalls indeed when compared to doing so with the benefit of a contract negotiated by your solicitor. Most importantly the sellers’ obligations to give the purchaser a ‘good title’ to the property are generally considerably less onerous and in most cases the seller ends up with no obligations other than to deliver a deed which allows title to be transferred and the discharge of any mortgage security.  The seller does not need to deal with any other title problems and most particularly does not need to discharge any notices of potential liability for costs (“NPL’s”) which may be registered against the property.  Our experience is that a significant proportion of flatted properties offered for sale at auction are affected by NPL’s and in many cases the amounts due are substantial.  In one recent case a client of ours purchased a property at auction for £42,000 and found out after purchase that the property had an NPL against it and was shocked to discover that the amount due in terms of the NPL was £50,000! This debt transmits to the new owner of the property and sellers often put such properties to auction, confident in the knowledge that most purchasers are completely unaware of these notices and have no way of finding out about them easily.

While one might think that if a seller deliberately conceals this information they could be accused of inducing the purchaser to enter in to the contract by deliberately concealing material information, the main case on the matter offers scant comfort to the purchaser.

In (Parvaiz v Thresher Wines Acquisitions Ltd [2008] CSOH 160) which concerned a purchase of a shop premises in Glasgow the Court made the following comments:

‘The [buyer] had purchased a particular title at an auction sale. The nature of an auction is that an item is exposed. The potential buyers make such enquiries as they wish. Once a bid is accepted the successful bidder goes away with the item. The auctioneer gives no guarantee whatsoever. The situation is one of caveat emptor. It is for the purchaser to have made enquiry before he “raises his paddle”. Because it is for the purchaser to enquire, he cannot complain if he gets something other than what it is that he wants.’

The use of the words “caveat emptor” which are the curse of buyers everywhere, should give us an idea of the true extent of the risks involved with an auction purchase.

Some particular pointers about an auction purchase

Pre-auction:

(i)            Get a survey; If you are not doing this accept that you are buying the property defects and all.

(ii)           Arrange finance; If you are getting a mortgage be very careful of buying at auction.  Check the ‘Articles of Roup’, the General (and any Special) Conditions of Sale; check if you would be responsible for insurance as from auction day; the title will usually have to be taken ‘as it stands’ (i.e. good or bad). Also the date of entry in the Articles of Roup is usually material and is also usually very shortly after the auction date.  It will prove extremely difficult to organise a mortgage in time to complete.  Also the date of entry is usually a material part of the contract an failure to pay the price on the date fixed for entry can mean that the purchaser forfeits his deposit and the seller is entitled to sell the property again.  We had a Client who was not able to complete in time because he was waiting on mortgage approval and forfeited a £9,000 deposit and the seller refused to reinstate the purchase when the mortgage offer was finally obtained, kept the £9,000 and put the property back to auction.

At the auction:

Check if there have been any amendments to the Articles of Roup or anything else shown in the on line description or catalogue; the auctioneer will invite bids – whatever you do don’t get carried away.  Stick to your plan and walk away if bidding gets too fierce. If the hammer falls on your bid then (assuming any minimum or ‘reserve price’ which the seller may have fixed has been reached) you have bought the property “warts ‘n’ all” and are committed to the purchase.

The contract:

This will be signed there and then and the deposit paid usually by bank debit or credit card direct to the auctioneers.

After the auction:

Contact your solicitor, though, as I hope I have explained above, there is not a lot can be done to “rescue” the situation, all the legal work to transfer title still requires to be done by your solicitor.  If you have the documentation let him have a copy of the ‘Articles of Roup’ etc; tell your lender (if applicable) and let them know the date of entry when the balance of the price is payable and explain to them how material it is; also if you have assumed responsibility for insuring the property as is often the case, tell your insurers so you are ‘on risk’ in relation to the property.

Legal advice for buying or selling property at auction in Scotland

The above is a guide only and should be taken as such. If you would like any more information about auction sales and how they work please contact Robert Fitzpatrick at The Glasgow Law Practice who will be happy to help.  Please do it before you buy rather than after it is too late! – Fill out our online enquiry form here.

Note: This material is for information purposes only and does not constitute any form of advice or recommendation by us. You should not rely upon it in making any decisions or taking or refraining from taking any action. If you would like us to advise you on any of the matters covered in this material, please contact Robert on 0141 779 4466.