Purchase of Flats etc at ‘Auction’

Author: Mitchells Roberton
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  • The usual way of buying a house, or a flat (or other ‘heritable’ property) involves the would-be purchasers having viewed it after it has been publicly advertised; 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.
  • Although such sales and purchases are public in one sense – in that the property will generally have been publicly advertised in the first place – such sales are referred to as ‘private’ sales (or sales by ‘private bargain’) because the actual contract for the sale and purchase is privately negotiated between the sellers and purchasers’ respective solicitors. They are so called – even though the property will usually have been publicly advertised – in contrast to the method of selling and buying such property at a public ‘auction’ or, as it used to be more commonly known, by ‘public roup’.
  • The aim of this Note is to highlight some of the main points of difference between a ‘private’ sale and a sale by ‘public auction’ or ‘public roup’. But before turning to say something about sales by public auction or ‘roup’ a little is said about private sales.

Private sales

  • In a private sale the seller is obliged to give the buyer a ‘good title’ to the property. In outline a good title means:
    • The seller undertakes to give the purchaser ownership of the whole property described in the contract which will be free from challenge;
    • The seller undertakes that the title will be free of any security (i.e. a standard security affecting the property in relation to the sellers’ (or anyone else’s) personal obligations;
    • The seller undertakes that there are no unusually onerous conditions in the title; and
    • The seller undertakes that there are no leases affecting the title (except where leases might be expected owing to the nature of the property).
  • Usually all these requirements (and many more) will be set out in full in the terms of the written contract as will be agreed between the sellers’ and purchasers’ respective solicitors. But, even if they were not expressly set out in writing, these conditions concerning ‘good title’ would, in any event, be implied by law.
  • Of course, these conditions as to a ‘good title’ could nevertheless be varied by agreement between the parties if that was wanted in any particular case.

Public sales at auction (or by public roup as they are sometimes known)

  • These are not so common as they once were. But they do still happen quite regularly. Broadly speaking the ‘auction’ happens rather like an auction of furniture; or paintings; or other ‘moveable property’ in that the sale and purchase take place in one fell swoop in an auction room – except, of course, whereas the furniture or painting at a conventional auction is physically present in the auction room that cannot be so with a house or flat. Essentially though both forms of auction sale operate in much the same way.
  • In any event buying a house or flat (or other property) at auction is quite a different thing from doing so privately where the contract for the sale and purchase is individually negotiated over a period of days or weeks between the sellers’ and purchasers’ solicitors. Importantly the undertakings mentioned above in relation to private sales concerning the sellers’ obligations as to giving a purchaser a ‘good title’ to the property are generally disapplied.
  • In a recent case (Parvaiz v Thresher Wines Acquisitions Ltd [2008] CSOH 160) concerning an auction sale of shop premises in Hyndland Street, Glasgow the matter was put like this:

‘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.’

This perhaps gives a flavour of the risks involved with an auction purchase. The next section mentions some of the things to think about if you are considering an auction purchase.

Some particular pointers about an auction purchase

  • Pre-auction:
    • get a survey; arrange finance; 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) so get your solicitor to check the title to avoid nasty surprises.
  • At the auction:
    • Check if there have been any amendments to the ‘Articles of Roup’ etc; the auctioneer will invite bids – if the hammer falls on your bid then (assuming the ‘reserve price’ has been reached) you are committed to the purchase.
  • The contract:
    • This will fall to be signed there and then and the deposit paid usually by banker’s draft made payable to the auctioneers.
  • After the auction:
    • Tell your solicitor and 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 tell your insurers so you are ‘on risk’ in relation to the property.

The above pointers are only that. If you would like any more information about auction sales and how they work please contact Ian Ferguson here who will be happy to help.

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 Ian Ferguson: icf@mitchells-roberton.co.uk

 

 

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