The Importance of due diligence and obtaining Property Searches Before Buying a commercial property at Auction

Buying a property, whether for personal use, investment or development, is a significant financial decision.

What Are Property Searches?

Property searches are checks which are carried out to uncover any potential issues affecting a property before you commit to buying it. These searches provide critical information about legal ownership, planning permissions, environmental risks, and financial liabilities, to name a few. They help you understand what you’re buying and ensure there are no hidden surprises.

Why Property Searches Are Crucial – Especially at Auction

When purchasing a property through traditional means, buyers often have more time to conduct due diligence before making an offer. However, at auction, things move much faster. Once the hammer falls, the winning bidder is legally bound to complete the purchase, typically within 28 days. This means that you must conduct all necessary searches before bidding to avoid costly mistakes. Auction properties will often release some information by way of an auction pack.  These packs can vary and sometimes only have very limited information.

Here’s why property searches and due diligence are particularly important when buying at auction:

1. Uncovering Legal Issues

One of the biggest risks of buying at auction is that properties may come with legal complications. For example:

• Title defects – There may be issues with ownership, such as missing deeds or disputed boundaries. Not only does this cause issues during the transaction, but it also poses a huge risk post-completion, as you never know who may come along in the future and claim that you are infringing on their boundaries or that you do not have the right to use the property in the way that you intend to.
• Restrictive covenants – These are legal conditions that limit what you can and can’t do with the property, such as restrictions on extensions or business use. Again, it is extremely important that this is resolved prior to the exchange of contracts, otherwise, you may find that you are unable to make changes to the property or use it for a specific purpose, despite owning it. If these restrictions are ignored, you are exposing yourself to potential fines and enforcement action, which will set you back significantly.
• Easements and rights of way – Another party may have legal rights over the property, such as access through your land. This could become very frustrating, as ideally, you would want the property to have an element of privacy or have plans for development, but this might not be possible if someone else has a legal right to access your land.

2. Checking for Outstanding Debts and Charges

Some properties sold at auction come with financial liabilities attached, such as:

• Outstanding mortgages or secured loans
• Service charges and ground rent (for leasehold properties)

In some cases, these debts may become the responsibility of the new owner. A local authority search and bankruptcy check can reveal these potential liabilities, and your solicitor will flag these to you prior to the exchange of contracts so that you are not unknowingly taking on this responsibility.

3. Identifying Planning and Building Regulation Issues

If previous owners have made alterations or extensions to the property without proper planning permission or building regulation approval, you could face problems in the future.

• Illegal extensions or conversions could result in enforcement action from the local council.
• Conservation area restrictions may prevent future changes to the property.
• Listed building status can impose strict rules on renovations.

Carrying out a planning search ensures you know exactly what you can and cannot do with the property. This is particularly important if you are purchasing a commercial investment property from which you will be carrying out business, as you will be confined to carrying out a specific type of business depending on the ‘use class’ that the property has been assigned. i.e. office spaces, retail units, etc.

4. Environmental and Flood Risks

Environmental searches can reveal risks such as:

• Flooding – Some properties are in high-risk flood zones, which could make insurance expensive or difficult to obtain.
• Contaminated land – If the land was previously used for industrial purposes, there may be contamination issues that require costly remediation.
• Subsidence – Some areas have a history of ground movement, which could lead to structural problems.

Without these searches, you could buy a property that is difficult to insure, costly to maintain, or even unsafe to live in.

How to Carry Out Property Searches Before an Auction

Before bidding on an auction property, take these steps to ensure you have the right information:

1. Obtain the auction legal pack – This is provided by the seller and should include essential documents like the title deeds and documents, lease information (if applicable), any special conditions, replies to standard enquiries and possibly some searches.
2. Hire a solicitor– A qualified professional can carry out legal checks and searches on your behalf, and they will advise you on which searches to undertake and report to you on these.
3. Inspect the property – If possible, visit the property to check its condition and identify any potential issues and instruct a survey.

Final Thoughts

Buying a property at auction can be a great way to secure a good deal, but it also comes with risks. Without thorough property searches, you could end up with legal complications, hidden debts, or structural problems that turn your bargain purchase into a financial liability.  This could also adversely affect the future mortgageability or saleability of the property.

By doing your due diligence before bidding, you can confidently invest in auction properties, knowing that you have the full picture and aren’t walking into an expensive mistake.

Need Legal Guidance?

Whether you’re looking to buy or sell a commercial property, understanding your legal obligations is essential. 

📞 Call us at 0161 667 3686, visit www.prosperitylaw.com to book a consultation with our expert legal team or email enquiries@prosperitylaw.com.

The Real Estate team at Prosperity Law are specialists in this area and are here to help you navigate your next commercial property purchase.