Coronavirus - Online property auctions: Tips and traps - Ireland

• Ireland

• Coronavirus
• Coronavirus - Country overview
• Coronavirus - Real estate

05-06-2020

All sectors of the economy have been affected by the preventative measures taken by Government to limit the spread of COVID-19.

The impact of these measures is becoming more pronounced as the months pass and the country continues in its phased lockdown. It is clear that certain aspects of the real estate landscape will change post COVID-19. An example of this is how properties, both residential and commercial, are bought and sold.

Online auctions

Auctions have played an important role in how properties were bought and sold for decades. However, attending an auction to place a bid may be something we see a lot less of, if adherence to social distancing measures are required for the foreseeable future. As a result, many proposed buyers may want to utilise online platforms not only to view properties but to buy too. Notwithstanding, the convenience of online auctions, buyers should familiarise themselves with potential risks and pitfalls before purchasing a property using such platforms.

Beware seller friendly contracts for sale

When buying or selling a property in Ireland, a standard Law Society contract for sale which contains standard conditions is commonly used. This contract aims to reach a balance between the buyer and seller. However, the conditions of this contract can be amended and it is not unusual, particularly where a property is being sold online, that the standard contract would be amended to shift the balance in favour of a seller. As a result, without seeking independent legal advice, the buyer may unknowingly sign up to onerous contractual obligations.

The Law Society amended its general conditions of sale in 2019 (the “2019 Contract”). The 2019 Contract is the form of contract used for all property transactions agreed since 1 January 2019, unless the parties agree otherwise. In contrast to its predecessor contract, under the 2019 Contract, a buyer is deemed to have ‘Accepted’ certain matters relating to the property on signing the contract. This means that once the contract is signed and exchanged there is very limited room for negotiation should any issues arise as the buyer is deemed to have full knowledge of the property on signing the contract. Given the potential consequences of this change, it is important that a buyer carries out all legal due diligence prior to signing a contract, whether online or otherwise.

Signing contracts for sale

A buyer is bound by the terms of the contract once it is signed by both parties and exchanged. In the course of a private treaty transaction, once the buyer and their solicitor are satisfied with the contract and title documents furnished, the buyer will sign the contract in duplicate and have his signature witnessed. Both original signed contracts are then returned to the seller’s solicitor to be countersigned together with deposit monies. It is at this point that the contracts will be dated and exchanged. One counterpart of the contract is then returned to the buyer’s solicitor.

In contrast, with online auctions, a buyer is bound by a contract the moment they click the purchase button, irrespective of whether they have reviewed the title to the property and/or the contract. The buyer will be required to authorise an employee of the online auction group to sign the contract on their behalf with the seller signing in a similar way and within seconds an enforceable contract will be exchanged.

Deposits

A deposit payment is always required for the purchase of a property. This deposit will usually equate to 10% of the purchase price of the property. A deposit is usually transferred by the buyer to their solicitor on the signing of the contract. This deposit is subsequently transferred to the seller’s solicitor, where it is held in trust or as a stakeholder on behalf of the buyer. If the purchase does not go ahead, the buyer may (subject to the terms of the contract) be entitled to a full refund of this deposit.

In contrast, where a property is purchased online, a 10% deposit is automatically required to secure the property in the online auction. Terms should be read carefully as there may be a special condition in the contract stating that this deposit is non-refundable. The online firm may not hold the deposit in trust or as stakeholder and may be paid directly to the seller. Should an event occur which prevents the sale completing, there is no guarantee that this 10% deposit will be returned.

Title Deeds

Title deeds are fundamental in any conveyancing transaction and are vital in establishing the seller’s title which allows them to sell their property. When purchasing, the seller’s solicitor will issue copy title together with the contracts. In an online auction scenario, title deeds together with all other relevant documents will be uploaded to a dataroom. A dataroom has the capacity to hold a large quantity of documents and can be somewhat tedious to navigate. Given the capacity of datarooms, it is very easy to overlook important information. All documents uploaded to a dataroom should be reviewed carefully.

COVID-19 concessions

As a result of government measures designed to limit the spread of COVID-19, it will not be unusual for landlords or owners of commercial or residential properties to have made concessions with their tenants. It is vital that a buyer has full knowledge of any such concessions made, as these could impact the value of the asset.

Conclusion

One of the benefits of online auctions is that they are fast paced. In the ordinary course of events, the period between agreeing a sale and achieving a signed contract can be anywhere between 4-12 weeks. Some buyers may be attracted to the short completion timelines used for online transactions. However, buyers should bear in mind that properties purchased at a lower price could be accompanied with title and other issues that require full consideration by their solicitor.

Our advice is buyers who wish to purchase properties online should err on the side of caution and ensure they seek independent legal advice at the outset of the process.