11/03/2008 The Star Articles of
Law By BHAG SINGH
Properties sold at an auction may appear to be cheap. But buyers need to
understand the various aspects that could indirectly hike up the price.
LOOKING at the advertisements in the daily newspapers, it would appear that
a large number of properties are being auctioned off every weekend. The
indicated prices appear to be way below the market price, making it appear
like an attractive purchase.
A reader wanted to know whether it is safe to buy a property at an auction,
and whether the buyer is adequately-protected by the law. He also asked if
properties could be auctioned off without a court order.
Buyer beware: Before buying a house at an auction, the buyer needs to be
aware of the issues and complexities involved.
Well, court approval is only required if there is a precondition in the loan
agreement requiring approval of the court before it can be sold. Otherwise
the court is only involved if the land has a charge registered under the
National Land Code.
Right to sell
Almost all the auctions in the advertisements include a reference to a bank,
a financial institution or a borrower. This would suggest a loan default
scenario. The words “assignee” and “assignor” in the advertisements suggest
that the property in question does not have separate individual titles to
enable a charge to be registered.
Where there is no individual title and the loan is granted on the basis of a
loan agreement and a Deed of Assignment, the lender is entitled to dispose
of the property on the strength of a Power of Attorney, unless there is a
In fact, most such documents allow the lender to dispose of the property
without any prior court approval. The agreement may not mention an auction
but the auction mechanism is utilised to make the intended disposal known to
a wider audience to get the best price and show transparency.
Before buying a house at an auction, the buyer needs to be aware of the
issues and complexities involved. The offer price may appear to be cheap but
there could be other aspects that could increase the cost of the
To start with, the property may not necessarily be available at the
indicated price. This is merely the reserve price at which the bidding will
start. Depending on the property and the buyers it has attracted, the price
could end up much more than the reserve price.
An auction creates a setting to put in place a contractual relationship
between the parties involved. The process starts with the publication of an
Following the advertisement, the auctioneer invites bids for a particular
item for sale and starts the ball rolling. This is referred to as an
invitation to a treat. If a bid is made pursuant to such invitation, that in
law constitutes an offer, which the auctioneer is free to accept or reject.
However, the sale by an auctioneer is concluded when he announces its
completion by the fall of the hammer or in any other customary manner.
The next question that arises is: what are the terms and conditions on which
the property is purchased? When property is purchased from a developer,
there is the standard Sale and Purchase Agreement, if it is a housing
accommodation. When a property is acquired through a sub-sale, the terms are
set out in the Sale and Purchase Agreement, which is the result of
negotiations between the parties.
Conditions of sale
However, the scenario in an auction sale is different. This is because the
property is sold based on the Conditions of Sale, which become the terms on
which the property is transacted.
These Conditions of Sale are always available before the auction takes
place. An individual bidder at the auction ought to obtain and familiarise
himself with these terms and conditions before the bid. This is because if
the bid is successful, he will be deemed to have entered into a contract on
An example of a clause in a Condition of Sale which illustrates the risks a
bidder must assume when he purchases a property, reads as follows:
“The property is sold on an ‘as is where is’ basis without vacant possession
subject to (a) all express and/or implied conditions,
restriction-in-interest affecting the Master Land and that which may be
imposed/endorsed on the document of individual strata title to the property
upon the issuance thereof, (b) all easements, covenants, charges, caveats,
liabilities, (including but not limited to liabilities to the local
authorities incurred but not ascertained and any rates made but not
demanded) and any adverse claims in respect of the Property; and (c) all
tenancies, lease, occupiers and rights (if any) of any tenant or occupier,
subsisting thereon or therefore without any obligations arising to define
the same respectively.”
It is a common and acceptable practice to purchase a property subject to
express and implied restrictions endorsed on the document of title. But if
there are tenants on the land, the bidder has to take the responsibility of
evicting them and bear the costs incurred with the added risk that
compensation may not be recoverable. The same would apply in the case of a
need to have a caveat removed.
This is different from purchasing a property from a developer or an ordinary
individual where the vendor has an undertaking that the property is free
from encumbrances which could include caveats, and that the seller will hand
over the property to the buyer with vacant possession as part of his
To reinforce the rights of the seller or rather the seller’s lack of
obligations, such Conditions of Sale often provide a condition binding the
purchaser to admit that he has inspected the property and is buying it in
the condition that it is in. An example of a Condition of Sale which
exonerates the seller from handing over the property with vacant possession
has a clause which reads as follows:
“The successful purchaser shall at his own costs and expense take possession
of the property after the payment of the balance purchase price. The
assignee/lender or its agents have no obligation to deliver vacant
possession of the property and the successful purchaser is prohibited from
entering the property before the payment of the balance of purchase price
and/or late payment interest.”
Need for caution
It would be in the interest of the bidder to visit the property and inspect
it to familiarise himself with the condition of the property. The
photographs in the newspaper or leaflet may not convey the real state of the
property which the bidder expects to acquire.
These are just some of the conditions of sale. A detailed examination of the
Conditions of Sale in auctions could disclose a host of responsibilities
which the seller may exclude himself from.
In conclusion it must be said that a valuable property may well be acquired
at an auction. However, there is a need to make adequate inquiries and
investigations, and consider all the factors in order to end up with a good