Buying a Commercial Property at an Auction

In 2022, 40% more properties by value in the UK were sold at auction compared to 2019, and many auctioneers predict this trend to continue during the coming years.

Our Property Auction solicitors regularly act for clients purchasing properties big and small at auctions, and below outlines what we think are the important considerations when buying a commercial property at auction based on our experience.

You should always aim to instruct a solicitor before buying at auction and as early as possible.

Unlike the traditional route of buying a property through an estate agent, once you place a winning bid at an auction, the deposit (typically 10%) and the auctioneer's administration fees are paid. Crucially, you are legally bound to buy the property, and should you back out, you would have to forfeit the entirety of any deposit paid, and any fees or expenses will be sunk costs.

The legal requirements mean crucial legal work must be done before you bid on the property.

This work will include that which typically takes place before you exchange on a traditional purchase, such as:

• Title Investigation
• Reviewing any obligations or restrictions relating to the property
• Local area checks and existing tenancy checks
• Further investigations and even negotiations if we have an opportunity to do this before the auction

A solicitor should be instructed as early as possible, as leaving it too soon before the auction could result in insufficient time for all due diligence to be conducted.

A modern auction is conducted online. Again, the auctioneers prepare a legal pack for prospective buyers to review before the auction. Prospective buyers will submit their bids online, and when a successful bid is made, the buyer will be required to pay a reservation fee to secure the property. The reservation fee is not the deposit and does not form part of the purchase price. It is a non-refundable fee that is payable in addition to the purchase price and auctioneer's fees.

Unlike traditional auctions, contracts are not exchanged at the auction and buyers are not required to pay the deposit on the day of the successful bid. Completion must usually occur within 56 days of the successful bid; during this time, the seller cannot sell the property to another party. If the buyer cannot meet the completion deadline or chooses to pull out of the purchase following the successful bid at auction, the buyer will lose the reservation fee, and the seller will be free to sell the property to someone else.

Whilst buyers have more time to exchange contracts and complete the purchase following a successful bid at a modern auction, and even though the reservation fee is less than the 10% deposit required at a traditional auction, withdrawing from the purchase can still be costly as the reservation fee and auctioneer's fees will be lost. Therefore, it is still imperative to have the legal pack reviewed by a solicitor and the appropriate legal advice sought before bidding at the auction to avoid any nasty surprises further down the line.