Misled by a Property Auction? Can I cancel the contract and get my deposit and fees back?
Our commercial litigation and property litigation teams are frequently consulted when an auctioned purchase has gone wrong. You may need to try to leave the auction; maybe you were not well advised or misled. You may be a vendor dealing with an unsuccessful bidder. Our team will help you in any situation. We’d love to help.
Purchasing property (land and buildings) at auction is significantly riskier than a standard residential or commercial property transaction. In a standard property transaction, buyers are not able to get expert advice from a licensed conveyancer or conveyancing solicitor before committing to a purchase. When you purchase at auction, the legal requirements, rights and obligations of both you and the seller are different. The Law of Property Act 1989 excludes auction contracts specifically from the requirement that a contract for sale of land be in writing. When the auctioneer asks for bids, he is inviting you to treat the property. By responding with a bid you are offering to purchase the property at the price you have bid. The auctioneer will accept the bidders offer when he drops his hammer. This creates a binding contract between the seller and buyer. Both parties are legally bound to perform the contract.
It’s not unusual for buyers to discover shortly thereafter that they’ve contracted to purchase something that doesn’t meet their expectations and on unexpected terms.
Common Issues
Common issues encountered by sellers include:
The property differs from what was described in the auction pack.
- The property is in poorer condition than detailed by the auction pack.
- There are third party rights over the property not identified in the auction pack.
- The property has rights of access.
- The right of tenure (freehold or leasehold) is not the same as understood from the auction pack.
- The terms of the sale contract in the auction pack are not properly understood.
- The seller tries to introduce additional terms to the sale contract after your bid is accepted.
- The price of the property after adding in legal fees, additional fees, and premiums is higher than you anticipated. You can’t afford it.
- The property you are buying is not mortgageable and you cannot afford to complete the purchase.
- The seller gives you a date for completion but you are unable to meet it.
- Auction packages and sale contracts must be read very carefully. It is not uncommon for auction buyers to make a mistake when it comes to the contents of the auction pack. They rely on this information in order to place their winning bid.
If you were given the correct information, but overlooked its importance or did not seek expert advice before placing your bid, you will likely be bound by the contract’s terms. In this case, it’s your responsibility to complete the contract.
If something false was included in the auction package, then it could be a different situation. This could be a misrepresentation and you may be entitled to cancel the contract or claim damages.
What is a Misrepresentation?
The law of misrepresentation is primarily governed by the Misrepresentation Act 1967 and common law principles.
A misrepresentation is when a party makes a false statement about a fact (for instance, the condition of the property), or a law (for instance, the time between the auction and completion), in order to induce the other party into the contract. A misrepresentation may be innocent, negligent or fraudulent.
Misrepresentation of auction property occurs when false or misleading statements about a property’s characteristics are intentionally or unintentionally made to induce a purchase. These misrepresentations are wide-ranging and can include aspects such as a property’s physical state, legal status, permitted use, zoning classifications or liabilities, like undisclosed land debts (such as service fee debts) or liens. If you believe that the property on which you placed a winning bid was misrepresented and you want to avoid the purchase, or explore a claim of damages if you have already completed the purchase, you should seek immediate legal advice. You must prove that the misleading information played a major role in your decision to bid on the property and that you relied upon it. You should preserve any evidence you have.
If the misrepresentation can be proven, you may be able cancel the contract. You can cancel the contract and get your deposit as well as other compensatory damages if you can prove the misrepresentation.
Not all errors or omissions constitute a misrepresentation. Minor discrepancies which do not affect the value or use of a property are unlikely to reach the threshold needed to reverse a sale.
Can Auctioneers Escape Liability? In a nutshell, yes. They are used to dealing with these transactions and their terms and condition are carefully drafted so that they exclude liability for anything related to the property, contract or auction pack. Any claim you may have will likely be against the seller and not the auctioneer.
The Importance of Taking Legal Advice on Property Auctions
Understanding the importance of taking legal advice on property auctions cannot be overstated. We do not provide this advice, as we are not transactional lawyers and only deal with these situations if something has gone wrong. Property auctions, while offering potential bargains, still involve paying significant sums and taking substantial risks that can have significant implications for your commercial position.
Pre-Auction Due Diligence
Before participating in an auction, conducting due diligence is imperative. This goes beyond just reviewing the auction catalogue. It includes a thorough inspection, obtaining an extensive title report, as well as possibly engaging real estate and legal experts. These experts can help decipher complex legal terms, identify pitfalls and issues, and advise you on the local market.
Frequently Asked Questions
Is a Property Auction Legally Binding?
Yes, a property auction is legally binding. Once the hammer drops and you are the winning bidder, you will be bound to pay a deposit and proceed to completion. You need to understand the terms and conditions of the auction before entering it and bidding.
Can You Get out of a Property Auction Contract?
Exiting a property auction contract is challenging but possible under certain conditions. Obtaining legal advice from specialist litigation solicitors is critical to navigating this complex process, as the legal landscape is heavily tilted against buyers at auction.
