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Falling rents and property prices combined with pressure on banks to get large loans off their books have seen a flood of commercial premises coming to market via auction, according to property experts at Black Country law firm George Green LLP.
And with lenders keen to liquidate assets as quickly as possible in order to rebalance their books, this trend is creating real opportunities for investors keen to pick up a bargain.
Nirmla Rabani, associate at George Green’s Cradley Heath office, said: “At the start of the economic downturn, everyone was concerned about the potential for home repossessions on a scale last seen in the early 90s but less has been said about the impact on commercial property.
“While lenders have come under significant public pressure to help those facing residential mortgage or rent arrears, many banks have been taking a far tougher line with commercial debtors, often forcing the liquidation of a business or the sale of its assets at the first indication of potential difficulties.
“While this is undoubtedly bad news for those businesses affected, it means that more commercial properties – particularly industrial units and pub premises – are being sold through auctions, creating a real boom in the number of auction-related instructions we’re receiving.”
Although buying at auction can be a valuable route for investors looking to secure a quick and easy purchase with minimum costs, there are pitfalls buyers need to be aware of if they’re to avoid ending up with an asset worth much less than they anticipated.
Nirmla continued: “Under UK law, auction purchasers are legally bound to pay 10% of the purchase price on the day, with the remainder due within 28 days. They also become liable for any damage to the building as soon as the hammer falls. Usually, a standard clause in the purchase contract specifically exempts the seller from any costs associated with the destruction or damage of the building once a bid is accepted so it’s crucial to get insurance in place at the earliest opportunity.
“Under UK law, the principle of caveat emptor also applies, which literally translated means ‘let the buyer beware’. Potential purchasers should therefore review the auction catalogue, obtain any information pack and visit the property themselves, or employ suitable professionals to do so on their behalf, before bidding to ensure they understand what it is they are bidding on.
Typical issues we have come across include catalogue descriptions that neglect to mention that a property looks onto a motorway or a public footpath passes to the rear; issues with leases and tenancy agreements affecting the property; and unusual terms and conditions in the seller’s contract or title deeds, all of which can have a real impact on the value, future use and marketability of a property."
“With so many potential obstacles to overcome, it’s imperative that buyers seek professional advice well ahead of the auction date to allow plenty of time for any issues to be addressed before bidding commences and certainly before the gavel falls!”