Property auctions are an increasingly popular way for property owners to sell their properties and for potential buyers to snap up a bargain
However, what at first sight appears to be a bargain can turn out to be an extremely costly mistake.
Property auction issues
We have acted on several cases for purchasers who have successfully bid on a property only to discover some significant problem with it. Examples of situations where buyers have encountered difficulties could include:
- The purchaser of a long residential lease which was already subject to forfeiture proceedings by the landlord due to significant breaches of the terms of the lease. The new owner would inherit a considerable financial liability to the freehold landlord or faced the forfeiture of the lease.
- The property being described in a certain way or to include certain things, such as a larger piece of land or parking space, when this is not the case.
- The purchaser of a freehold of a commercial property discovering that the seller had reached an informal agreement with the existing tenant regarding the rent payable, which did not reflect the terms of the lease provided in the auction pack.
- A seller of a flat suggesting that it was able to extend the term of the lease and assign the benefit of this to the buyer when in fact legally, this was not possible.
- Including out-of-date searches in the auction pack, which did not reflect the true position.
In all cases, it is vital that you read the small print, and that you are aware of issues like the difference between buying at a traditional auction and a modern method auction.
The importance of taking legal advice on buying property at auction
One thing that many of the examples above have in common is that the buyer did not take any legal advice on the contents of the auction pack before bidding on the property. Whilst talking to a property auction conveyancing solicitor before bidding on a property at auction may not seem like a necessary expense, it can reduce the risk of costly mistakes.
Whilst such advice cannot remove the inherent risk of purchasing a property at auction completely, asking a solicitor to check through the auction pack, identify potential issues and discuss the contractual terms will provide a bidder with a more informed idea of the risk that they are prepared to take and the amount they consider reasonable to bid. Pre-auction enquiries can be raised with the seller or agent and whilst there would be no obligation on them to respond, if they want to maximise the bids they receive, it might be in their interests to do so. If you are considering purchasing a property at auction and would like to instruct Cunningtons to assist in considering the auction pack, please do get in touch.
Misrepresentation at property auctions
We have previously written about misrepresentation in a residential property context (read My Seller Lied To Me here). This article focusses on property misrepresentation in the context of auctions.
The first thing that needs to be said about auctions is that generally, the applicable contractual terms have not been negotiated between the parties. They are generally presented in the auction pack on a “take it or leave it” basis.
It is not uncommon for contractual terms to be heavily one-sided and to pass all the risk (and normally the cost) on to the successful bidder. These contractual terms will invariably contain what are known as limitation or exclusion of liability clauses, which seek to limit or exclude liability for things said about the property which might not be factually accurate.
Sometimes what are called “whole agreement” clauses are included, and these seek to specifically exclude anything said about the property which might otherwise have become a contractual term. Effectively, these clauses seek to protect the seller by saying that anything said about the property which is not included in the contract cannot be relied on if they turn out to be inaccurate.
Whilst “buyer beware” or “caveat emptor” is a principle of law, meaning that buyers should undertake the necessary steps they want to check the suitability of what they are going to purchase, the law does seek to balance the requirement for buyers to do this against the broad requirement for sellers to at least try to be accurate in the information that they provide.
Certainly, in cases of fraudulent or reckless misrepresentation there is some scope to challenge clauses which seek to limit or exclude liability. Section 3 of the Misrepresentation Act 1967 provides that any terms within a contract which would exclude or restrict a seller’s liability for misrepresentation, or limit the remedy available to a buyer for this, are of no effect unless they are “reasonable”. If such terms are unreasonable and of no effect, then the misrepresentation is actionable and a claim can be pursued.
Test of Reasonableness
The test of reasonableness is contained in Section 11 and Schedule 2 of the Unfair Contract Terms Act 1977 (UCTA).
Sadly for buyers, there is not a black-or-white, yes-or-no test or criteria to determine whether or not such clauses are reasonable or not; merely examples of what may or may not be reasonable in the circumstances. The test is to a large degree subjective and this means that the Court has the ability to consider what the parties knew, or ought reasonably to have known, about the situation at the time.
Each of these cases is therefore very fact-specific and a careful consideration of all of the facts is necessary. Broadly, the guidelines set out in UCTA which the Court will consider are:
- the bargaining positions of the parties, taking account of alternatives that the buyer might have, such as alternative property;
- whether there has been an inducement to agree to the term or had an opportunity to enter into a similar contract with someone else without such a term;
- whether the buyer knew or ought reasonably to have known of the existence and the extent of the term;
- where the term excludes or restricts liability if some condition was not complied with, whether it was reasonable at the time the contract was entered into to expect that this condition would be met.
Case law on exclusion and limitation of liability clauses is extensive. This is understandable to the extent that the law exists to balance the interests of a seller to sell a property without fear of a future claim and the right of a buyer not to be misled, certainly not deliberately. Whilst cases can provide helpful guidance and may be relevant to your particular circumstances, they are rarely conclusive of the matter, as when situations like this arise, there are always factual differences.
Further advice for auction buyers
Check carefully what the terms say about the fees.
Often there will be a contractual clause obliging the successful bidder to pay the seller’s legal costs. These can sometimes be quite high and an unexpected expense which should otherwise have been factored into your decision in respect of the maximum bid you are prepared to make.
Often, searches are included in auction packs, as it would be a rare circumstance when a buyer would have time to undertake their own searches. Normally the cost of these searches will be passed on to the successful bidder as well. Any searches should be checked carefully for what they reveal. They should be checked to make sure they are up-to-date. If there is missing information or queries which come out of the searches, the risk of this should be considered when bidding for a property. If searches are inadequate, then checking the auction terms to see whether the buyer can rescind the contract in the event of discovering something untoward later is worthwhile doing.
If you require finance or a mortgage to purchase the property, make sure that your lender is on board and satisfied that the property is going to provide good security.
We have acted for clients who have successfully bid on a property, paid a sizeable deposit and then discovered a defect in the title to the property, or something else which makes the property unsuitable security for a mortgage. The lender then withdraws the mortgage offer, leaving the client in a position of being unable to complete, and therefore liable to lose their deposit, or have to seek a bridging loan or some other finance at considerably worse rates.
Can Cunningtons help?
As you can appreciate, it is much easier to avoid legal problems with a property before you bid on it.
So we would strongly recommend inspecting a property first, as well as talking to a property conveyancing solicitor. Otherwise, any savings you make through buying property at auction could disappear in a misrepresentation claim.
We would be interested to know about your experiences of purchasing property at auction. If you feel that you have purchased a property pursuant to a misrepresentation, then we may be able to assist you, let us know your experiences in the comments section below.
Try our new Property Misrepresentation Assessment service
If you think your seller withheld information about a property you bought at auction, you may be able to claim against them.
We now offer a fixed-fee service so that we can assess your claim. Have a look at Assess My Claim and see if we can help.
Hi, I purchased a property at auction last week and now I have decided that I made a mistake and no longer want it. Can exit out without any fees and if there are fees what is the vendor entitled to in terms of fees that I will need to pay. I have payed £19,000.00 deposit aswel, will I be able to get this back.
Thank you
Thank you for your comment.
Unless the contract provides for a mechanism or trigger to bring it to an end, which would not make much sense, then you have probably committed to purchase the property.
You would need to check the contract that you agreed to before placing the winning bid in order to establish what you have contractually agreed to pay in the event that you do not proceed to completion.
Hi,
I bought a property at auction, while we conducted our due diligence based on the information that was made available prior to bidding, the construction type of the property was not disclosed. When this happens, one would normally assume that the property is of standard construction.
Post bid, it was then discovered that the property was of non standard BSIF construction which has been classified as defect as per Housing Defect Acts 1985. Which implies the property is not mortgageable and also non-favourable bridging loan options.
I reached out to the auctioneer and of course they played the “Buyer Beware” card saying they do not carry out surveys prior to auction. Whilst doing my research, I discovered the auctioneer had sold identical property on the same street about a year ago for which they have declared on that listing that the property was of non standard BSIF construction and it was sold at a rate cheaper than what I have payed today.
Non-disclosure of such vital detail, has affected me because if the construction type was disclosed, I wouldn’t have placed the bid and if I would have, the maximum bid would have been lower than what I have paid.
Could issue like mine be governed by Section 3 of the Misrepresentations Act 1967?
Thank you for your comment.
A seller is not obliged to volunteer any particular information about a property to a prospective buyer. Unless it can be said that a seller, or their agent (who should not engage in misleading practices), represented to you that the property was in some way a non-standard construction, it is unlikely that there would be a claim. Unless a seller says something to a buyer for the buyer to rely upon, it can only realistically be the case that the buyer has relied on his own information and assumptions in deciding whether or not to proceed.
Dear Experts,
We successfully bid for a two-bed property and paid our deposit in Apr 2024. While processing the bridging loan, we understood that it is classified as a one-bed house as there is no family bathroom and the valuation was too low.
Further digging about the property, we understood that the same property was advertised as a 1-bed property in Oct 2023 with a floor map from online history. With any changes, the same auction house advertised the property as a two-bed. We have completed the purchase process to honor the agreement and not lose the deposit, but we notified the sellers about the misleading advert before its completion.
I want your advise on suing the auction house for deliberately misleading advert.
Do we have a point here to sue them?
How do we proceed from here?
Thanks in advance.
Thank you for your comment.
We are not sure about this. Fundamentally, for a misrepresentation claim to exists, there must be an inaccurate statement of fact. An opinion, or statement of law is not generally sufficient for a claim to arise.
Put into context, we suppose that you could strip every room out of a “one bedroom property” (i.e. kitchen, bathroom and living room) and then say it had four bedrooms (or at least four rooms that could be used as bedrooms). The fact that it didn’t have anything else would obviously be an issue (and a buyer might be entitled to assume that a property had a bathroom and kitchen, so perhaps not the best example), but the point is that this could be considered a statement of opinion – whilst the rooms might not be as intended by a prospective owner, as far as the seller was concerned, they were bedrooms. We are not aware of any statutory definition of a “bedroom”. If the issue is the lender’s classification of the property, then again, this is presumably their own opinion of what constitutes a one bedroomed property, illustrating the point. It would be for a buyer to ensure that whatever lending criteria which needed to be met was capable of being met by the property being purchased. If the buyer did not have this information, they would be proceeding at their own risk.
The fact that you completed may also have an impact on matters. Certainly, when it comes to a breach of contract, the aggrieved party may have the right to rescind the contract. However, if they proceed with the purchase nonetheless, there is a risk that they have legally affirmed, or “accepted” the breach of contract and impliedly agreed to waive any rights to pursue it.
After bidding and winning a bid for a property at auction, I found out that the seller had bought the house a month prior themselves. It that auction the house was described as having serious structural issues, and all associated documents were included. However in the auction I bid at, the now new owner chose to remove all signs of structural defects and present the property on the agents sheet and in the legal pack as though it was a normal house with no issues. It was by chance I found out the truth about what the seller had done. They are however choosing to not answer my questions and insist I complete.
This is likely a case of “buyer beware”. There is generally no duty on a seller of anything, including property, to disclose specific things about what they are selling. It is up to the buyer to decide whether or not they want to proceed based on the information that they have. If the buyer is not given the opportunity to ask questions, or indeed questions asked are not responded to, the position does not change. It is the buyer that has decided to take the risk in proceeding based on their own assumption and appetite for risk.
Sometimes, but the extent to which the principle will apply here and this would require careful consideration, a misrepresentation can occur by reason of something which is left unsaid. If it can genuinely be said that the property was represented as one with no issues of the nature that you have now discovered, and the seller was aware of those issues, then there may be a misrepresentation claim. However, such claims are risky, as a great deal turns on the extent to which it can be said that a reasonable buyer would have understood that the seller was representing that the property was free from defects. If there is room to suggest that the buyer made any assumptions themselves on the point, then the risk increases.
The fundamental basis of a misrepresentation claim is that one party induces another party to enter into the contract based on something that is factually inaccurate, and would have changed the other party’s mind about proceeding in some way. If a buyer of property has made assumptions, it cannot really be said that the seller said something that induced the buyer to enter into the contract.
hi i bought land at auction i asked for the legal pack the auction company told me to bid and i would get the auction pack,
they then asked for money still no auction pack
the wouldn’t tell me the size
the pictures are of different land
the description is wrong saying it has excellent access when it has none
saying theres local amenities when theres none
im unsure where i stand i feel like i have been misled as its was a picture of grassland when its actually a small wood
hope you can help
This sounds very odd indeed, and possibly sharp practice, so you may wish to consider approaching the Property Ombudsman or any other redress scheme that the auctioneer is part of.
However, in law (and subject to a number of exceptions here and there, such as some consumer legislation), the basic position is always “buyer beware”. This means that it is up to the buyer to decide whether or not they want to make an offer and proceed with the purchase of anything. If a buyer has no information about what they are buying or making an offer on, then they proceed at their own risk.
However, there is one very old case, which might have some comparisons or application to your matter. This is the case of Atlantic Estates Ltd v Ezekiel [1991], in which it was held that there had been a misrepresentation because the auction pack showed a wine bar in use, when in fact the bar did not have a licence.
If there is a genuine mistake as to the subject matter of a contract, this can potentially have legal implications, potentially making the contract void or voidable.
Hi, I would really appreciate your advice on the following matter .
I bid in an auction recently for a leasehold property. The sellers were initially very slow to reply to any of my solicitors queries . I had an agreement in principle before going into the auction but after survey it was rejected as property was not considered a suitable security . I then got in touch with a bridging lender who also rejected due to lack of leaseholder and landlord certificates. On the auction terms and conditions there is a section about lease holder certificates
section G9.3 The agreed completion date is to be not earlier than the date five business days after the seller has given notice to the buyer that the licence has been obtained.
G9.6 If within three months of the contract date (or such longer period as the seller and buyer agree) the licence has not been obtained the seller or the buyer may (if not then in breach of any obligation under this condition G9) by notice to the other terminate the contract at any time before licence is obtained. That termination is without prejudice to the claims of either seller or buyer for breach of this condition G9.
Can I exit the transaction and terminate contract as it’s been 3 months since exchange and the documents have still not been provided but the seller has served notice and wants me to pay for damages . Kindly do help , cause I’ve had 3-4 mortgage applications declined , already lost a lot of money and can’t afford to pay for further damages as being claimed by the seller
Thank you for your comment.
We cannot provide specific advice on our website. Whilst we can provide some general guidance, this is not a substitute for properly considered legal advice. Please therefore do not take anything on our website as legal advice or rely on it when making any decisions. By way of example, what you appear to be referring to are RICS common auction terms. However, these may have been amended and the conduct and communications of the parties may also have had an impact on the legal position.
Subject to such matters as that which we refer to above, what you have referred to appears to be reference to those standard auction conditions, in particular the parts relating to whether or not the seller requires a licence to assign the leasehold interest that they intend to assign (i.e. consent from the landlord, which is not uncommon in leases). The basic position is that the buyer must respond to reasonable requests of the seller in this respect but if, after three months, the notice of assignment has not been received then yes, in theory notice to terminate the contract can be given, but this is without prejudice to any claims which may arise under the clause (for example, if the buyer has not complied with the lawful requests of the landlord).
Hi Shantanu,
Sorry to hear that this has been a distressing matter for you. I have recently suffered a huge loss in the auction process as well. Just wanted to know if you have suggestions about how you navigated through this.
Hi – I bought a property at auction with tenants in situ and is the process to complete. However, my solicitor has highlighted that the seller only bought the property 4 months ago from LPA receiver so has no possession on the property thus title is being sold as limited title guarantee. My solicitor has told me that I can get an indemnity insurance which is only 100 so it’s fine with me. However, since the seller solicitor will not provide any answers to inquiries, we are not sure if there is a gas safety safety certificate provided to tenant, thus pose a risk to issue notice s21 and we also don’t know where is the tenants’ deposit. They have provided me a disclaimer on which they have highlighted this risks.
I have asked my option if I did not continue to the sale, I would lost my deposit which is 8.5k and can pay penalties up to 10k. I am unsure now how to proceed, will it be better to just continue with the purchase and accept the unknown risk and if cannot mitigated, just sell the property again for another auction but might be sold in less price or even if the current seller has no possession, it can be easier to get possession on the property?
Thank you for your comment.
Even if we were instructed by you to advise, we could not make that decision for you. We think you are
right to identify the fact that absent the service of a gas safety certificate on the tenant prior to taking
up occupation can cause problems in terms of service of a valid Section 21 notice (we also undertake a
large amount of residential possession claims for landlords).
As a firm, we in fact offer to all of our conveyancing clients the option of some advice about the tenancy
when they are purchasing a property with a tenant in situ for the very reason that in recent years, the
legal position with respect to assured shorthold tenancies has become a little more complicated, with
pitfalls for the unweary landlord.
Whether or not you decide to proceed is really going to be based on whether or not you are prepared to
take the risk that as long as the tenant is never in breach of the terms of the tenancy, you might find
that you are never able to evict them. From a procedural point of view, you might also be unable to use
the accelerated possession procedure if you do not have all of the documentation that you need to use
this.
You might also want to consider the other grounds to obtain possession of a property. These are
“Section 8” grounds and whilst most relate to breaches of the tenancy, there are a couple of other
grounds which might apply if you do need possession of the property back in the future. These can be
found in Schedule 2 of the Housing Act 1988.