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Buying Blind - Buyers Beware!

Public auctions have been a popular way to buy and sell agricultural property for centuries on the basis that the system is seen as a fair, competitive and quick way to buy and sell. 

Where demand exists, agricultural property often does well at auction, particularly when there are a few neighbours desperate to add the land to their worth, and willing to pay whatever it takes to get it.  However, even if you have neighboured the land for generations, you cannot know the true extent of what you are buying if you do not investigate the property fully.

At an auction, the successful bidder will, on the fall of the hammer, be bound to pay over a 10% deposit and pay the balance of the purchase price on the named completion date. If the Buyer fails to do so, he will lose his deposit and may have to compensate the Seller for any other losses incurred. Therefore, as the stakes are so high, it would be wise for anyone interested in purchasing property by auction to ensure that they are fully informed about the matters affecting the property prior to raising their hand. 

The Auction Pack, prepared by the Seller’s solicitor, will be available for inspection by prospective buyers and their legal and land agency representatives normally at least 10 working days before the auction. The Auction Pack will include documentation regarding the Seller’s title to the property, responses to standard enquiries before contract, any property information forms, the usual search results and the Sale Contract. 

Title

It is important to understand the title to the Property before bidding at auction.  A Buyer may find that the property is subject to matters which may restrict his intended use of the property or which oblige him to undertake works or make unforeseen payments.  

In addition, third parties may have rights over the property, such as exercised rights of way or utility companies’ wayleaves, which may obstruct the use of the property.

Prospective purchasers tend to rely on the information disclosed within the Sale Particulars issued by the Seller’s Land Agent. However, most particulars include a disclaimer whereby the Buyer will take the property subject to any existing third party rights, whether or not they are disclosed within the Particulars.

Searches

A Local Authority search and Drainage and Water search are usually included within the Auction Pack.  Other searches such as an Environmental Search and Coal Authority search may also be available if relevant to the area in which the property is situated and its past uses.

A Local Authority search will reveal, among other things, the presence of Public Rights of Way, Conservation Areas, SSSI designations, Tree Preservation Orders or proposed new roads which the Buyer will take the property subject to.  It will also reveal whether new buildings have obtained satisfactory planning permission approval and comply with building regulations.         
               
A Drainage and Water search will disclose whether the property has the benefit of mains water and drainage and whether any distribution pipes or drains run through the property, which inevitably may cause considerable disruption and damage when being repaired.

Contract

On the fall of the hammer, the successful bidder will be bound into the contract and its conditions.  If they have not previously inspected the contract, they will be agreeing to terms which they are not aware of. 

For example, many Buyers are not aware that they may be required to pay all or some of the cost of the searches included within the Auction Pack, regardless of whether they actually inspected the searches before the auction.

The contract will specify whether any Single Farm Payment entitlements are included and if a claim has been made for the current year.  The claimant is obliged to keep the land in accordance with the current SFP requirements throughout the duration of the scheme year.  When land and entitlements are sold during the scheme year, the Seller is still obliged to meet the requirements on him as claimant, despite him no longer having any control over the land.  The contract will impose responsibility on the Buyer for meeting these requirements.  Moreso, if the Buyer breaches the rules, and the Seller is penalised as a result, the Seller will be entitled to recover any loss suffered from the Buyer. Similar provisions apply where the land is tied into an Entry Level Stewardship agreement or other Agri-Environmental schemes. 

Under the contract, the property is deemed to be at the risk of the Buyer from the auction date.  Therefore, a prospective bidder should arrange for insurance to be put in place from that date.

Mortgage

Anyone looking to purchase property with the assistance of a mortgage should have secured funding before bidding at the auction, otherwise they may be unable to complete the purchase on the specified date.  A Bank will normally require a satisfactory survey be conducted on the property before they make a formal offer of funding support. 

Having a survey done before committing to buy a property is essential so that the Buyer is aware of any defects or work required to the property.  The results will also influence how much they are prepared to pay for the property.

Conclusion

Auctions are undoubtedly a popular way to buy and sell property, but to buy with confidence, you should, well in advance of the auction:

  1. Ask a solicitor, experienced in Agricultural law, to consider the Auction Pack on your behalf and advise you of any adverse matters affecting the property;
  2. Arrange for a mortgage offer to be in place (if necessary);
  3. Instruct a surveyor to inspect the property; and
  4. Arrange a draft insurance policy.

Although you are not guaranteed to be successful at the auction, the initial costs of instructing your professional advisers to investigate the property beforehand is money well spent to ensure that you are fully aware of what you are buying (and sometimes what you are not buying!) and what your legal obligations will be under the contract. 

Diane Barnes is a solicitor in Burnetts’ Agricultural team. For further information on buying or selling agricultural property contact Diane on 01228 552222.                                                        

About the author

Diane Barnes profile photo

Diane Barnes

Senior Associate Diane specialises in agricultural land and property sales.

Published: Friday 23rd March 2012
Categorised: Agribusiness

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