Under the Hammer: buying commercial property at auction

GG Online Brochure_Page_05_Image_0002Property auctions can be a useful way to acquire an investment at what is literally a knock-down price. Unlike a traditional property sale, however, an auction contract can be concluded in a matter of minutes. As with anything in life, forewarned is forearmed, so here are our top tips for how to bag a bargain in the saleroom:-

  • Do your research

The auction catalogue will usually be published well in advance of the auction itself. Gather as much information as possible and decide which property you want to bid for. Bid for the property, not the bargain. If other people aren’t bidding on a property on the day, there’s probably a good reason. So if you’ve lost out on your preferred property, don’t be tempted to bid for a different lot in the hope you might pick it up for a good price.

  •  Know the property

Once you’ve purchased the property, you will have the same responsibilities as if you’d bought it through a traditional sale. Go on a site visit if you can – get to know the area, and the local market. Are there similar properties for sale or for rent? How easily will you be able to re-let the property if it falls vacant? You won’t be able to tie up a deal ‘subject to survey’ so try and ascertain all of the pitfalls in advance.

  •  Involve others

Your contract to buy the property is concluded as soon as the hammer falls and will be an unconditional contract. Most auctioneers will make a legal pack available for each lot in advance of the auction, so ask your solicitor to have a look over the terms of the auction contract, the title deeds and the lease documentation. Whilst you may not want to incur the expense of a full report on the property when there is no guarantee of a successful purchase, most lawyers will be willing to carry out a high-level review of the legal pack and advise you of any ‘red-flag’ issues. If the title or leases don’t stack up, there’s nothing you can do about it after you’ve successfully bid.

  •  Know the deal

In a traditional property sale, the contract is concluded by exchange of missives (i.e. formal letters) between the buyer’s solicitor and the seller’s solicitor. In an auction, the terms of the contract will be contained in a document called the “Articles of Roup” which will form part of the auction pack. If your bid is highest, the auctioneer will offer the property to the room twice before “knocking down” the deal with the hammer. At the point the hammer falls, you are committed to the purchase on the terms of the Articles of Roup and the auctioneer will ask you to complete the “Minute of Enactment” which provides the purchaser’s details and confirms you accept the terms of the Articles of Roup.

  •  Be ready to pay

Most auction contracts will require the purchaser to pay a 10% deposit immediately upon the bid being accepted. It’s worth checking in advance what forms of payment the auctioneer will accept (e.g. is it payment direct to the auctioneer, or to the seller’s lawyers?) so that you are able to pay the deposit across at the same time as signing the Minute of Enactment. You will need to have funds available on the day of the auction itself, so know your maximum bid before you enter the saleroom – even if you will be using bank funding to complete the purchase, you will need to have the 10% deposit available in cash on the auction day itself. However, if you don’t have bank funding arranged in advance of the auction, it may not be possible to put this in place before you are required to pay the balance of the price, so make sure you know how you are going to pay at completion.

  •  Register in time

As noted above, you will be entering into the contract on the date of the auction itself. If you are buying the property in the name of a new company, that company will need to have been registered in advance so that it is able to sign the auction contract. You will also need to check whether any VAT registration is required.

If the seller is VAT registered and has waived their VAT exemption on the Property, VAT will be chargeable on the sale. However, if the Purchaser is VAT registered and also waives their VAT exemption, you can obtain TOGC relief (meaning no VAT is payable) where the property is being sold with occupational tenants in place.

However, for TOGC relief to be available, the Purchaser must meet the relevant criteria at the relevant tax point. Depending on how the auction contract is worded, the tax point may well be payment of the 10% deposit. So, to benefit from TOGC relief, you may need to ensure that you are VAT registered and have waived your VAT exemption on the property prior to the auction date. However, your solicitors will be able to advise you further on the VAT position after review of the auction pack.

Gilson Gray’s real estate team are experienced in both the sale and purchase of properties at auction and would be happy to answer any further queries you may have.

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For More Information Contact:
Murray Stewart
Mobile: 07920 866 998
Direct Dial: 0131 516 5370
Email: mstewart@gilsongray.co.uk

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For More Information Contact:
Gregor Duthie
Mobile: 07841 022651
Direct Dial: 0141 433 7753
Email: gduthie@gilsongray.co.uk 

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For More Information Contact:
Iain Witheyman
Direct Dial: 0131 516 5358
Email: iwitheyman@gilsongray.co.uk 

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The information and opinions contained in this blog are for information only. They are not intended to constitute advice and should not be relied upon or considered as a replacement for advice. Before acting on any of the information contained in this blog, please seek specific advice from Gilson Gray.

 

 

 

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