Is Modern Method of Auction Legal?

You may have a copy of these documents already, but often conveyancers will download fresh copies (for a relatively small fee).Most Title Registers will confirm ownership, the price paid /value stated information if sold since April 2000, details of the first sale (to see when the property was built).  It will also show rights of way or restrictions on the land and charges (such as mortgages and other secured debts) against the property.

Note that Title Registers that haven’t been updated for a long time may need complementary documentation compiled (by the conveyancer).

The Title Plan is a scaled graphic representation of the position of the land surrounding the property and its boundaries.  It may also highlight easements, covenants, areas of land removed from the title and other information.

Published on the modern auctioneer’s website / auction, the terms and conditions highlight how the auction will be run, roles, responsibilities and such like.Most modern auctioneers follow the Royal Institute of Chartered Surveyors (RICS) Common Auction Conditions (4th edition).  Check out our own terms and conditions for Modern Method (conditional) auctions.

Normally undertaken by the buyer’s conveyancer, searches contain a range of information related to the surrounding area.They form an essential part of the auction legal pack and your conveyancer will make a series of requests to local authority and other public bodies.

The main searches include Local Authority (which takes the longest), Environmental, Flood Risk, Water, Drainage, Boundaries, Commons Registration, Land Charges, Chancel Repair, Canal and River, Mining and Solar panel confirmations.

Buyers will look at these documents to make sure there is nothing out of the ordinary.  However, some will take out specific ‘no search’ indemnity insurance policies to protect against any risks particularly as it’s common to hear of delays for searches to arrive in good time.

The Special Conditions of Sale is a separate document that clearly states any contractual variations on the transaction that the buyer should be aware of.These may include:

• Any extensions to the period between payment of the reservation fee and exchange of contracts and/or completion (often the case with commercial property and land sales);
• Additional sales commissions payable to property dealers or asset management companies;
• Any of the seller’s legal fees or disbursements payable upon exchange or completion;
• Issues on the Title that can only be resolved post-completion;
• If the property has been inherited and is still going through probate, any associated financial conditions that could affect the buyer post-completion should be highlighted;
• Any Land Registry restrictions (RX1) that are still in place (these will need to be cancelled prior to exchange of contracts, unless agreed otherwise);
• Any unusual charges against the property or surrounding land that will remain against the property post-completion.

A Law Society form – completed for any house sale – that contains a range of information regarding boundaries, party walls, disputes / complaints, notices / proposals, alterations / planning / building control, guarantees / warranties, insurance, environmental matters, rights / informal arrangements, parking, other charges, occupiers and services.

Another Law Society form completed by the seller that identifies what will and will not be included as part of the sale.This includes basic fittings, appliances across the property (particularly in the kitchen and bathroom), carpets, curtains / curtain rails / blinds, light fittings / switches, fitted units, outdoor items and television receivers.  There’s also a question regarding fuel supply.

If you’re selling a leasehold property, you will need to supply specific details using this form.  The questions essentially confirm the details of the lease documentation.Note that you will also have to supply copies of the lease, supplemental deeds, contact details / correspondence from the landlord / management company, service charge / ground rent confirmations, invoices, statements, payment confirmation, notices, consents, complaints, alterations and enfranchisement.

The freeholder or freehold managing agent completes this form. It contains key information regarding  transfer / registration / Ground Rents, Service Charges, building insurance, maintenance, fire safety certificates, any deeds of covenant / certificates of compliance, licences to assign, restrictions, permissions, disputes / enfranchisement amongst other finer details.

Sent with the LPE1 form, this typically contains the following:

• Insurance policy documents;
• Health and safety policies;
• Service charge estimates and accounts (independently audited);
• Fire risk assessment;
• Asbestos survey (or confirmation of no presence of asbestos);
• Forfeiture documentation (if applicable);
• Deeds of Variation (if applicable);
• Deed of Covenant (if applicable);
• Certificate of Compliance (if applicable);
• Licence to Assign (if applicable);
• Any permission(s) to alter the property;
• Notices served on the lessee (if applicable).

This one-page document summarises the contents of the LPE1 form and management pack (sent to the seller’s conveyancer). The costs ground rent, service charges and insurance premium costs will all be stated alongside details of the sinking or reserve fund.  The management company may also include bank statements.

If you’re selling a tenanted property (with tenants in situ), modern method auction bidders will want to see all the necessary information.This would typically include:

• The current Assured Shorthold Tenancy (AST) agreement or licences in place;
• If you’re selling a House of Multiple Occupation (HMO), it’s better to show the individual room tenancies;
• Related to the above, remember to include any HMO licence agreements where applicable (issued by the local authority);
• Information about the occupants at the property.  This can include who pays the rent and if there is a head tenant or specific family member that pays the rent;
• Any evidence of voids and/or arrears (alongside any resolution);
• Confirmation of any notices served in the past;
• Proof that the deposit has been correctly transferred into the appropriate custodial scheme (Deposit Protection Service, Tenancy Deposit Scheme or MyDeposits).  In most cases, the conveyancer will transfer these funds directly to the buyer (who will need to place it back into one of these schemes);
• An up-to-date Energy Performance Certificate (EPC);
• Evidence of the mandatory completion of the annual gas checks (CP12);
• A minimum ‘satisfactory’ Electrical Installation Condition Report (EICR);
• Evidence of a working smoke / carbon monoxide alarm;
• Proof of Right to Rent checks;
• Evidence that the tenant has received a copy of the Department for Communities and Local Government (DCLG) ‘How to Rent’ Guide.

Preferable but not essential…

• Confirmation that any furniture sold with the property is fire retardant;
• Confirmation that there are no other health and/or safety hazards;
• Credit referencing reports (Experian, Equifax, Call Credit);
• Character references from employers and/or previous landlords;
• There is no evidence of outstanding works or tenant complaints;
• A detailed inventory report from when the tenant first moved into the property;
• Evidence of a Legionnaire’s disease risk assessment.

Please note that the above is an exhaustive list that, in reality, is not always provided at auction sales.

We would recommend focusing on gathering as much as you can (the last 7 ticks above are not completely necessary).

If you do not (or cannot) supply the majority of the above, buyers may make cautious bids due to the perceived risk that could be involved when buying the property.

Modern method auction is increasingly becoming a better option to sell a commercial property.The often complex nature of these types of sales tends to limit the buyer’s market to professional investors.

Indeed, you’ll often find that commercial property buyers regularly check out the auction portals for opportunities

By and large, they tend to adopt a more technical approach and will often request detailed information.

Much of what is necessary to provide can be supplied through conveyancers in the legal pack.  You may also need to consult with an accountant in relation to any tax-related issues.

This may include (but is not limited to):

• Commercial property leases, rental receivables, proof of income stream stability and other associated documentation;
• Information on termination dates, break clauses, rent reviews, transfer or charging restrictions, service charges, ground rents, business license / rates schedules, no evidence of criminal activity on premises, insurance provisions, forfeiture (termination) rights;
• Good covenant strength.  This includes financial status (solvency) and creditworthiness of occupational tenants (through independently audited accounts / financial assessments / payment records / net cash flow breakdowns);
• Guarantor information – including Authorised Guaranteed Agreements (AGAs) and any confirmation of sureties;
• Proof of compliance with covenants / consents / permits / easements / rights of way;
• Title checks (ownership, boundaries, 1st/2nd/3rd charges, encumbrances);
• Confirmation of no defects on title;

Remember, commercial property buyers are going to want more information relative to residential buyers…

• Confirmation of type of lease – such as full repairing and insuring (FRI);
• Maintenance / defect resolution costs and any major works undertaken;
• Current ownership structure (personal, company or trust);
• Profit and loss of any existing companies or special purpose vehicles (via balance sheet provision);
• Any evidence of comparable commercial rents at other similar properties in the local area;
• Demand for the specific type of commercial property.  For example, retail property is currently decreasing in popularity compared to industrial and warehouse space.  At the same time, there are many buyers who are exploring opportunities to convert commercial properties into residential under Permitted Development Rights (PDRs);
• Vacancy rates for the last 5 to 10 years;
• Any evidence of local cap rates / local commercial property valuations;
• Local planning and redevelopment proposals – particularly transport, schools, hospitals and other core infrastructure;
• Conveyancing enquiry responses;
• Condition of the property (the auctioneer will take photos and floorplans but most buyers will want a closer look);
• Planning and building regulation documentation (including any lapsed permissions / change of use applications);
• Evidence of enforcement notices / actions;
• Surveys (building, structural, site, mechanical, electrical, measurement, environmental/ ground / rights of light);
• Insurance policies in place (+ payment confirmations / any claims made in recent years);
• Current or pending legislation that could affect the property (including the Land and Tenant Act, Law of Property Act, Climate Change Act, Energy Act);
• Current or pending regulation that could affect the property (health & safety, fire / asbestos risk);
• Tax liabilities – particularly related to VAT;
• Whether the sale will be a transfer of ongoing concern and potential capital allowances.