Investors lose money at auctions due to misrepresentation of the legal package.
The auction houses do not intercede to solve legal problems derived from the auction.
Investors are struggling to recoup money from property auction purchases because vendors misrepresent the legal package, according to The Mistoria Group.
Most auctioneers don’t get involved after contracts are exchanged to resolve disputes, citing them as legal issues.
This results in buyers resorting to litigation.
“The cases of investors losing money in auctions are increasing.”
Mish Liyanage, Managing Director of The Mistoria Group, said: “Increasingly, we are hearing from investors who have lost significant amounts of money in auctions.”
“After going through the purchase process, investors find that the development or conversion plans they have proposed to carry out are no longer possible because there are tenants present, without evidence that the deposits have been protected with a scheme approved.”
“We are aware of a situation where an investor can lose £ 28,000, which includes the 10% deposit, auctioneer fees, transfer, legal application and planning costs. The intention was to convert the properties into an HMO, but the legal package / AST did not disclose the actual position on the rent and deposit. Basically, the provider misrepresented the legal package and is in breach of the contract.”
“It is not surprising that the auctioneer or sales agent did not want to get involved, citing this as a legal matter. Even though the investor followed legal advice and the law of the country, he runs the risk of losing a significant amount of money as he was unable to complete the property without resolving the legal package and tenure issues.”
The authorities must take action on the matter.
Due to the Coronavirus Act of 2020, residential owners must notify tenants six months in advance of their intention to seek possession. To enable the correct notice service, the leasing information must be correct; the deposit protected with an authorized scheme; and the prescribed information given to the tenant (s) and any other “relevant person” (i.e., any person who, in accordance with the arrangements made with the tenant, paid the deposit on behalf of the tenant.)
If an investor purchases a property with on-site tenants without this guarantee and later the tenants provide evidence that they have paid a deposit before moving in and have not been registered in a government-approved scheme, the new owner will be penalized and liable to pay up to three times the amount of the deposit.
Liyanage added: “This case highlights how expensive this game can be if things go wrong, due to major problems with previous ownership. We urge investors to exercise extreme caution when purchasing property at auction. As sellers and auctioneers win, buyers risk losing their hard-earned money.”
“My advice to investors who are considering buying a tenant-on-site property through auction is to do your homework on the legal package, especially the AST, well in advance. Also, seek legal advice early on and if there is a dispute after the exchange. Make sure that you, as the buyer, comply with all your contractual obligations so as not to be in default and also keep a record of all correspondence.”
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