Commercial Property Auctions: All You Need To Know
9 minute read
Date Published - July 24th 2024
Date Updated - September 4th 2024
9 minute read
Date Published - July 24th 2024
Date Updated - September 4th 2024
Commercial property auctions have become an incredibly popular method of buying and selling business properties in the UK. With a transparent process where properties, ranging from office buildings to industrial units, are available at a usually more competitive price, these auctions offer a unique opportunity for both seasoned investors and first-time buyers.
This guide will help you understand commercial property auctions before your visit, offering practical advice, outlining benefits and risks, and answering common questions. Whether you're new to auctions or a veteran, this information will help you navigate the process with confidence.
At GloverPriest, our expert commercial property solicitors specialise in guiding our clients through the intricacies of auction transactions, offering invaluable support at every stage. If you’d like friendly and transparent legal advice on commercial auctions, please get in touch by completing our enquiry form.
In UK law, ‘commercial property’ generally refers to anything that isn’t used for living in; most commonly alluding to buildings (and sometimes land) that are used for business activities. This includes office buildings, retail spaces, industrial units and much more.
There are several ways to distinguish between properties used for commercial and residential (or domestic) use, such as:
It’s worth noting that some commercial properties are Mixed-Use, meaning they combine various uses in one building or complex. This is particularly common in buildings that have a shop on the ground floor but a rented flat or apartment above.
Commercial property auctions are a popular method of buying and selling where properties are sold to the highest bidder in a competitive setting. Auctions can take place in person, online, or sometimes through a combination of the two.
Unlike traditional property sales (via an estate agent, commercial agent or chartered surveyor), commercial property auctions offer a more transparent process where bids are made publicly. The entire sale can happen very quickly, often within minutes once bidding starts.
One of the main advantages of buying or selling at auction is the certainty it provides - in most auctions, once the hammer falls, the sale is legally binding which means both parties are committed. This cuts the lengthy negotiation process that’s often the case in private sales.
In the UK, there are many different auction types that you might encounter.
Traditional auctions are held in a physical auction room, where bidders are present in person or can participate via phone or online. This method offers the classic auction atmosphere with immediate results. With traditional auctions, all bids are legally binding and, once the hammer falls, contracts are exchanged and both parties are now committed to the sale. There are sometimes circumstances in which this varies, but it’s rare.
The modern method of auction is a flexible, online alternative to traditional auctions. First, properties are marketed online for about 30 days. Bids can be placed at any time in a similar format to platforms eBay, with the highest bid at the end winning. Unlike traditional auctions which require an immediate contract exchange once the hammer falls, the modern method allows for a conditional sale. This means the winning bidder will pay a ‘reservation fee’ which gives them 28 days to exchange contracts and another 28 days to complete the sale (though this time frame can vary).
Online auctions are conducted entirely over the internet, where bids can be placed over a set period, often lasting a few days or weeks. This method has become increasingly popular, especially since the coronavirus pandemic, due to its convenience, allowing bidders to participate from anywhere without the need to attend a physical location.
Auctions tend to offer a higher chance of commercial properties selling well below their market value, while the more open and competitive nature of the bidding gives all participants a more equal opportunity to purchase the property. The process is usually a lot quicker, too, leading to immediate ownership transfer once the payment is completed.
For sellers, auctions provide a quick and efficient way to sell properties, significantly reducing holding costs. The competitive bidding environment can sometimes help achieve or even exceed the market value of the property, especially if it’s highly sought after. Additionally, the transparent auction process assures sellers of a fair sale, with the certainty of a legally binding agreement as soon as the auction concludes. This can provide peace of mind and a definitive timeline for the sale.
While buying and selling at commercial property auctions has its benefits, there are potential risks that buyers and sellers should both consider before going ahead.
One of the most common (and, arguably, most important) risks that a buyer faces is the limited time available to inspect the property and conduct thorough investigations before purchase. Unfortunately, it’s increasingly common for buyers to come across unforeseen issues after the purchase, which highlights the importance of working with an experienced commercial property solicitor from the start for expert legal advice and to ensure all due diligence is covered before the sale.
Additionally, in most auction types, winning bidders have to make an immediate financial commitment, typically paying a deposit right away and completing the full payment within 28 days. This often requires having finances readily available, especially in traditional auctions, which can be challenging for some.
Moreover, the auction process doesn’t allow for price negotiations; properties are sold as-is, meaning buyers must accept any existing problems or defects or not bid on the property at all. Competing with experienced bidders can also be intimidating, as seasoned investors often have more knowledge and expertise, potentially making it harder for less experienced buyers to secure properties.
Sellers will always face uncertainties regarding the final sale price, even with a reserve price in place. There’s no guarantee that the property will reach the price you expect, especially if there are few bidders on the day or the property isn’t marketed as well as you’d like.
Additionally, selling at auction involves fees, including the auction house's commission, which can reduce your overall proceeds from the sale.
It’s also worth considering that, if the bidding does not reach the reserve price and the property remains unsold, you’ll likely face further delays and additional holding costs. Moreover, if a property fails to sell at auction, it might be seen as undesirable by the auction house, which could affect its marketability in future sales attempts.
When purchasing a commercial property at auction, our specialist solicitors will work with you to complete thorough searches and investigations, making sure you’re fully informed about the property's details, potential risks and any legal obligations.
For sellers, we simplify the auction process by addressing any legal challenges early and preparing your detailed auction pack. At GloverPriest, our services will include making you aware of any relevant auction terms and conditions, while also handling all post-auction proceedings to make your sale as simple as possible.
For transparent and friendly advice that has the protection of your interests at heart, contact GloverPriest's expert commercial property auction solicitors today.
Here are some questions our experts are commonly asked about commercial property auctions, along with clear answers.
At auction, you’ll likely come across a wide range of business properties for sale, including office buildings, retail spaces, industrial units, mixed-use properties and more. Auctions often feature both high-value assets and smaller commercial spaces, too, meaning there’s something for most investors.
If you’re looking for local commercial property auctions, start by checking with your closest auction house(s), estate agent websites, and local property listings. Additionally, online social platforms and property forums often list upcoming auction events.
A good auction catalogue will include detailed property descriptions, guide prices, legal pack information, and any special conditions of sale. You should always pay close attention to the property's condition, any existing leases that you might be obliged to take over, and any granted (or refused) planning permissions, as these can affect its value and potential use.
Yes, interested parties are always encouraged to view and inspect the property they’re interested in and conduct thorough due diligence before auction day. This includes visiting the site, reviewing legal documents, and possibly even hiring a surveyor to identify any potential issues. You should discuss this with your solicitor first to avoid any unnecessary costs.
Typically, the winning bidder must pay a 10% deposit immediately after the auction, with the remaining balance due within 28 days. It's crucial to have your finances in order beforehand to meet these deadlines.
If the reserve price isn’t met, the property remains unsold. The seller might negotiate with the highest bidder after the auction or consider re-listing the property in a future auction.
Yes, but it’s incredibly important to arrange your finances in advance due to the tight payment deadlines. Speak with your lender before the auction to ensure you have a pre-approved mortgage or financing option ready. You should also consider that loans on auction properties often require a much higher initial deposit.
Buying commercial property without the funds will be a major challenge, but that doesn’t mean it's impossible. Your options might include partnering with investors, using vendor financing, or securing a lease option agreement. Each method has its complexities, so you should always discuss your plans with financial and legal experts before diving in to protect your interests.
Buyers typically need to pay a buyer’s premium, which is a percentage of the purchase price, along with legal fees and other administrative costs. These fees should be clearly outlined in the auction terms and conditions, so review them carefully before bidding.
The responsibility for obtaining an Electrical Installation Condition Report (EICR) typically falls on the landlord or property owner. This report ensures that the electrical installations are safe and comply with regulations. If you’re a seller, you might not be obligated to have an EICR before selling at auction but it can certainly be more lucrative to buyers. If you’re buying a commercial property and plan to lease the building, you’ll need to have an EICR completed before the tenant starts using the property.
While it's challenging to avoid stamp duty completely, certain exemptions and reliefs might apply, such as group relief, charities relief, or property transfers within a group of companies. Consulting with a tax advisor can help identify any applicable reliefs.
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