Under the hammer

Related tags Lease Real estate

Auction expert Matthew Mears gives some tips on the process.Individually, licensed premises are considered to be small-value transactions in the...

Auction expert Matthew Mears gives some tips on the process.

Individually, licensed premises are considered to be small-value transactions in the commercial property market. So the advantage of auctions is that by combining your property into a catalogue with others, you benefit from any joint marketing which is undertaken.

The vendor also remains in control of the sales process and on the fall of the hammer contracts are exchanged immediately with completion 28 days later - although this period can be extended by the vendor if required. This means more operators, including the nat-ional companies, can auction a variety of property interests - including former licensed premises, business transfers and investment properties.

Entering into a binding contract at the sale does put an obligation on both parties to undertake work in advance.

With assistance from solicitors the vendor is required to produce a legal pack to furnish purchasers with all the relevant information so they can decide the price they are willing to pay.

As well as the required legal documents, other information can be included. For example, if selling an older property, a report confirming there is no contamination will avoid any price reduction, if this was uncertain. Likewise, if selling a business, setting out which staff will be subject to TUPE transfer (which protects employee rights) and employment details will state these liabilities and including accounts will show the current performance. In general the more information you disclose the better.

The final feature of the auction process is "special cond-itions" - the vendor's requirements attached to the sale which cover a variety of issues. These include: the method for agreeing the inventory on completion, transfer of the current beer ties, and requiring the purchaser to obtain his own licence or a claw back payment attached to land, if a planning consent is obtained.

Planning consent

Other points to bear in mind when going to auction depend entirely on the type of transaction. When disposing of surplus properties it is recommended that, unless there is an obvious alternative use, you need not obtain planning consent to maximise your return. This is because of the risk that a failed application could blight the property, or consent for one use makes it difficult for another to be obtained.

If the property can be split - buildings and land,for example - it could be worth more than being sold as a whole.

The investment market is very buoyant at present with record prices being paid and if you are holding properties leased to tenants it could be time to take advantage of this trend.

Similarly, if you currently operate from a freehold property you could release the capital by selling it subject to a lease back to yourselves. This can be drawn on your terms and signed on completion.

The simple rules are, the longer the term and, within reason, the higher the rent, the more value is created.

In conclusion, preparation and consideration is required from the vendor to go to auction. But the certainty of disposal and avoidance of time-consuming purchasers, who subsequently withdraw their offer, makes this method increasingly appealing.

Matthew Mears is head of northern auctions for Colliers CRE. Auctions are taking place at Manchester Airport on July 13 and at London's Radisson SAS Portman Hotel on July 17. For more information contact Matthew on 0161 831 3306 or email znggurj.zrnef@pbyyvrefper.pb.hx

Tips on going to auction

  • Provide as much information as possible in the legal pack
  • Consider carefully implications of obtaining a planning consent
  • Could the property be split, if so, are the parts worth more?
  • When is completion appropriate, especially when selling a business?
  • Seek advice from solicitors and surveyors on lease terms for a sale and leaseback.

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