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Aesop and an Auction Fable

A fox one day fell into a deep well and could find no means of escape. A goat, overcome with thirst, came to the same well, and seeing the fox, enquired if the water tasted good. Concealing his sad plight under a merry guise, the Fox lavishly praised the water, excellent beyond measure, and encouraged the goat to descend.


So starts Aesop’s fable of the Fox and the Goat.


The hapless Mr Goat is encouraged into the well by the cunning Mr Fox, is then persuaded to help Mr Fox out of the well in return for the promise of a reciprocal helping hand out, and then left in the well to rue his choices. Adding salt to his open wound, Mr Goat is left with the following parting words of chastise from Mr Fox ringing in his ears:


“You foolish old fellow! If you had as many brain cells in your head as you have hairs in your beard, you would never have gone down before inspecting the way up, nor exposed yourself to risks that you had no way out of”.


A child’s tale or a regular real life drama? When it comes to the act of buying property at auction, my experience of my client’s transactions is, too frequently, the latter.


A recent transaction that I (eventually) assisted a client with highlights this perfectly. A client, with genuine intentions to improve the management of a block in which they owned a flat and with a keen eye for an angle, successfully bid on the headlease of a building and caretaker’s flat at auction. The client came to me post auction to assist with completion and to provide a report on the documents for future management purposes. The client was pleased with their day’s work at the auction until, that is, we discovered that:


  • The use of the caretaker flat was restricted by covenant;
  • The relevant right of first refusal notices had not been served;
  • The Seller had acquired the headlease without a licence to assign;
  • A licence to assign was required for our assignment but the time to compete had been reduced leaving insufficient time to obtain a licence prior to contractual completion.


Naturally, my first port of call was to the Conditions of the Auction with a reasonable expectation of some assistance for the client on some if not all of these points. Unfortunately, the Conditions were not helpful. In fact, the Special Conditions had been specifically drafted so as to remove any conditionality concerning licence to assign. Indeed, they placed the burden and cost for obtaining licence on the Buyer. They had also been drafted in other ways so as to limit the Seller’s liability for practically anything and everything.


What to do next? A helpful conversation with the Agent, the Seller or the Seller’s solicitor to see if common sense will prevail perhaps? Sadly, my approaches and requests were greeted with very little response whatsoever beyond the often times, shallow refuge of the unscrupulous: “caveat emptor”.


A notice to complete followed with very little engagement from the Seller’s solicitors who must have known the position that my client was in. Thankfully we have managed to resolve most issues since with the help of a pragmatic freeholder and a commercial client.


On another recent occasion, I found myself acting for start-up property developers looking to acquire a development site near Hertford. The legal pack had all sorts of challenges including unadvertised overage provisions, restrictive covenants against development and question marks about whether or not the Seller was in fact the registered proprietor or a sub-seller. I went into the weekend waiting for replies from the Seller via the auctioneer. The following week started with an unexpected but eerie few days of silence. Then an email on the Wednesday of the week from the client’s property advisor announcing that she had just heard from the agent that the Lot had been exchanged to the clients (prior to the auction) on the Monday with completion that Friday!


Once again, the Special Conditions, which had not yet been negotiated, were strategically slanted so as to prevent any legitimate challenge and, in this case, the notice to complete provisions had been altered with the usual ten working days’ grace, before Armageddon, reduced to three working days’. As a result, the Seller was able to serve notice and to put novice buyers under pressure to complete for fear of losing their hard earned deposit in the alternative. An exchange of contracts that was to my client’s distinct disadvantage (at that time) had been facilitated without reference to me, in the full knowledge that the clients were represented, and the exchange then went uncommunicated for two days and was never directly communicated.


These are two recent cases. There are more that I could find and mention if I tracked back through the archives. The facts from these cases, and my experiences, point to the following emerging/established themes:


  1. It can be the case that selling a property with some defect or other is best done through auction where the defect is often not disclosed or easily discoverable because, amongst other things, of the way that the information is presented and also of the way that the process is set up and managed;


  1. There are some very experienced property traders who when they sell their properties in this way have had the sense to instruct lawyers who are well versed in the process;


  1. The well-versed lawyers will have drafted special conditions of auction that safeguard the Seller against any repercussions to him/her/it of selling their property with a defect;


  1. The well-versed lawyers will have drafted the special conditions of auction and will then act in a way that places maximum pressure on the unsuspecting buyer to follow through.


I have heard it said, “if it looks too good to be true then very often it is”. My years of real estate and conveyancing experience have taught me that, speaking real estate for now, there are few truer words that have been spoken. In the case of auctions, this truth applies too frequently to be a random phenomenon.


In the interests of balance, it must also be true. of course, that there is many a gem of a deal to be found at auction. You cannot have one thing without the other and the auction market/means of sale would not exist without this. If I searched my archives with the intent of penning an article about the pot at the end of the rainbow that is auction buying, I am sure that I would also find plenty of helpful examples.


So, the points of these words are not to warn off auction buying altogether. Instead, the point of these words is to caution all against getting into something, anything really, before “inspecting the way up” or exposing oneself to risks that one has “no way out of”.

Posted By Zach Reynolds

10 January 2022

Zach Reynolds
Partner - Real Estate