Commercial property auctions are becoming a more and more popular way of buying and selling property. That is both good and bad – good, as it is a great way to make sure both buyers and sellers arrive at a price they can live with and have access to the properties they need – bad in that many people with little or no auction experience can end up making very costly mistakes.
Commercial auction property conveyance is a tricky process, but one at which we at Creative Legals excel. Still, we’re sure you have some questions. A few of our most frequently asked questions are answered below. If you can’t find your question here, though, we’d be happy to discuss your issue personally. Just call our commercial property auction and conveyancing team at Creative Legals.
What is commercial auction conveyancing?
Commercial conveyancing describes the entire legal process required before a commercial property can change hands. As the process is substantially different when the property is to be sold at auction rather than directly, commercial auction conveyancing is a separate specialty.
One of the biggest differences of commercial auction conveyancing from other types is the length of time required for legal investigation – due diligence, etc. The larger or more expensive a property is, the longer the investigation tends to take as well.
Another reason that commercial auction conveyancing needs to be handled by specialists is the frequency with which there are issues with tenants’ rights. Whereas when a residential property changes hands, there is typically the understanding that the current tenant must move out so the new tenant can move in, commercial properties typically come with paying tenants.
These tenants have a long list of legal rights, and both buyer and seller need to be very careful not to violate these rights. Any misunderstanding is likely to be very costly – for you.
The documentation requirements for commercial property transactions are also much more complex compared to residential property sales. Buyer and seller will typically both have conveyancers working for them, and documents pertaining to assessment of fire and other risks, current business rates and many more issues will pass through both conveyancers, whose jobs it is to make sure their clients fully understand the transaction and the laws defining it.
What does a commercial auction surveyor do?
The short answer is that a commercial auction surveyor is typically called upon to deliver a property valuation for the land and buildings up for sale. However, that barely scratches the surface.
The long answer is that a commercial surveyor might work for either the seller at auction, or for a potential buyer. They work to understand and report on the actual condition of the land and buildings, the presence or absence of asbestos or any other health or environmental issues, etc. Some might even turn their hands to document screening.
In the end, they produce a commercial building survey this is a document which can only be produced by a professional who is accredited by the RICS (Royal Institution of Chartered Surveyors), explaining the construction, size, materials, physical features and surrounding lands of any structures available for lease, auction or purchase.
The survey will also contain a technical analysis which points out any defects the building has, as well as any repairs it currently needs or is likely to need in the near future. It may or may not also include an estimate of the costs of effecting those repairs.
Finally, the survey will usually address the legal aspects of the building’s health and safety issues, the presence of leases or disputes affecting the property, and whether or not the property is a listed building.
What is a commercial auction legal pack?
A commercial auction legal pack is a set of documents typically prepared by the seller’s legal team. Most auction houses make these packs available on their web pages, while a few may still require you to inquire and have a copy posted or faxed to you. Hard copies are generally available from the auction house, as well.
A commercial auction legal pack will typically contain, at a minimum:
- The contract of sale
- The title plan
- Documentation of conveyancing searches
- All relevant planning permission documents pertaining to the property
- Any existing or recently existing tenancy agreements
- Any leases pertaining to the property
- Any information relevant to the management of the building or enterprise
- A form detailing the fixtures and fittings of the building(s)
- A form detailing legally required information about the property
- Details of any special or unusual conditions to the proposed sale
- A form detailing any existing leaseholds
- The results of land registry and local searches
- The ‘office copy entry’ of the register of title
It is generally a very good idea to inspect the legal pack very closely, to avoid making a bid on a property with flaws or features you do not want, or to make commercially unwise bids. For the same reason, it is an even better idea to have a legal advisor beholden only to you inspect the legal pack and advise you as to the property’s suitability for your purposes.
Do I need a solicitor for commercial property auctions?
The short answer is ‘yes’.
As a seller, you will need to appoint a solicitor as soon as you put a property up for auction, and you should really have retained one well before that time. They will absolutely be required to draw up the legal pack we talked about above, and as a practical matter, they can help make the entire process smoother, faster and less prone to terrible surprises.
As a buyer, you will also need a solicitor, and using a commercial auction property conveyance specialist like Creative Legals is an important way to protect yourself. Buying a commercial property at auction without a solicitor, if you can manage it at all, leaves you very vulnerable.
Once you win an auction for a commercial property, you have already entered into a legally binding contract. The time to get legal advice is before the auction.
A legal team like Creative Legals can make sure you understand exactly the contract you are considering entering into, that you know fully well exactly what you would be buying, and that there will be no expensive hiccups in getting either the initial deposit or any later payments from point A to point B. Even if there were no other issues, you’d need a solicitor of your own to deal with the seller’s conveyancers. Many won’t even speak to you if you aren’t represented.
Do I need a specialist commercial property solicitor to review the legal pack before I bid at auction?
Practically speaking, yes, you do.
The list of information appearing in the auction legal pack may seem all-inclusive, but reality often falls short of expectations. Many properties up for auction have been repossessed or are being sold to pay off one or more creditors in a bankruptcy situation. In these cases, the owners or managers of the property may have had very little to do with the assembly of the pack, and it might be heavily lacking, or even misleading, in details.
The use of a solicitor who specialises in commercial property auctions is vital, as they will be able to spot any deficiencies in the auction pack quickly and will be much better able to spot inaccuracies or errors than even an inexperienced, non-specialist conveyancer. It is your solicitor or conveyancer’s duty to spot and flag these issues for your attention, and to tell you whether you should avoid the property, request more information or to investigate further themselves – typically at your option.
How does an auction for commercial property work?
Unlike a traditional property sale or brokerage sale, there is no real estate agent advertising the property and lining up potential buyers. Rather, an auction offers up a property for sale to any and all buyers all at once and invites them to compete to offer the best price.
Once the auction formally starts, buyers enter bids, and when the auction ends the highest bid offered wins the property, having entered into a binding contract to purchase it. Depending on the nature of the auction, however, there may be a minimum price (called a reserve, typically set by the seller). If the auction ends and the highest bid is lower than the reserve price, no sale will usually occur. Note, though, that sometimes the auctioneer has the discretion to override the reserve price.
Advantages and Disadvantages of commercial property auctions
There are several substantial advantages to selling – or buying – commercial property at auction. These include:
- True Market Pricing – determining the ‘true market price’ (the price people are willing to pay for a commodity) for real property of any kind is very difficult. It can be estimated based on the recent sale prices of similar properties in similar states and similar areas, but it is still ultimately guesswork.
While only a limited sample of the market will be ‘present’ for an auction, the auction determines what this model market is actually willing to pay for this property exactly.
- Buyer Control – Buyers at auction know exactly what others are willing to pay for a property and can control whether or not they win the auction – assuming they all have similarly deep pockets.
- Egalitarian Access to Property – All interested buyers at an auction are, at least theoretically, under the same terms and conditions. An auctioneer cannot show favouritism, and the seller cannot sell to one buyer at a lower price than another offers.
No buyer gets better access to contingencies, and the sort of closed-door, smoke-filled-room negotiations that leave many buyers at a disadvantage are eliminated.
- Transactional Transparency – Everyone at an auction knows who the winning bidder was, and how much the others were willing to spend. No one is left in the dark, and no transactions are really secret. Though, of course the details of the money changing hands are nowhere near as public.
How much does a commercial property solicitor cost?
This is a trickier question than many might expect. While we at Creative Legals pride ourselves on transparency, not every firm or conveyancer feels that way.
Typically, though, a commercial property surveyor might charge anywhere between 0.5% and 3% of the total purchase cost of a property in a traditional sale, or a similar (but more predictable set fee) for a commercial property to be sold at auction. This varies with the size, complexity and difficulty of the job, and is often negotiable.
A solicitor might charge between 0.5% and 1.5% of the sale price for their part, or again a fixed fee of similar scale for an auction. Again, this can vary by circumstance, but is less likely to be negotiable.
Commercial mortgages are unique beasts all their own, and as we’ve seen the total price of a mortgage can vary dramatically from property to property and based on market conditions at the time of agreement.
You may also end up responsible for business rates, local authority charges, insurance, repairs, running costs and service charges for the property, Stamp Duty land Tax, and VAT, depending on your tax status.
At Creative Legals, your commercial auction property conveyancing costs start from as little as £997 plus VAT. We also offer stand-alone pre-auction legal pack review services starting at just £500 plus VAT. As we said, we pride ourselves on transparency, and we invite you to call to inquire about the exact costs you might pay in your unique situation.
Who pays fees at commercial property auction?
That can vary dramatically from situation to situation, and from auction house to auction house. However, the seller will usually pay a non-refundable entry fee to have the property listed for auction. This is usually added to the commission the auction house takes at the time of sale and will be expressed as a percentage of the sale price. Sometimes, however, it is a set fee.
In addition to the purchase price, the buyer may be liable for certain fees to the seller. These fees may include a portion (or even all of) the seller’s legal fees, the seller’s auction fees and more. The legal pack will disclose all such fees. Understanding whether these fees are reasonable is just one reason you may need a specialist commercial property auction conveyancer. You may also choose to finance your purchase; in which case you would pay for that as well.
Our Services Related to Commercial Conveyancing
Why might you need a commercial property auctions lawyer? There are many reasons, but most of them boil down to ‘because you need expert advice when buying or selling commercial property’. The first rule of property law is (unofficially) still caveat emptor – buyer beware. If you enter into a purchase or sale at auction without doing your due diligence, well, you get what you get.
We’ll be happy to look at the auction pack provided for any commercial property you are considering buying and offer you any other legal advice you might need.
As a specialist property law firm in UK, we provide the following services:
Auction Legal Packs
As commercial auction property conveyance specialists, we regularly prepare legal packs for clients selling at an auction and review them for clients considering buying.
Auction Sale Conveyancing
As a commercial property auctions solicitor firm, we provide a full range of conveyancing services when you’re selling residential or commercial property at auction.
Auction Purchase Conveyancing
When you’ve decided to purchase residential or commercial property at auction, you’re more in need of a good commercial auction property lawyer than ever.
Litigation
Creative Legals is more than just a firm of commercial property auctions conveyancers. We also offer a full array of civil and commercial litigation services.
Lease options
We are the only specialised lease option law firm in the UK. After all, it is in a commercial auction property solicitor’s best interest to look after all of a potential long-term client’s interests.
Evictions
Commercial property auctions lawyers spend a great deal of time dealing with the fallout of evictions procedures, and we are proud to offer a truly hassle-free eviction service to landlords and new property owners.
Independent Legal Advice
One of the services we are called upon to deliver most as commercial auction property conveyance specialists is providing the advice and information you need, to protect you when entering into legal agreements.
Housing Disrepair Claims
We help landlords and tenants with housing disrepair claims as well. We see quite a few of these as commercial property auctions solicitors.