What is an auction?
An auction is where a seller sells an item or property to the highest bidder. The highest bidder at a public auction is legally bound to proceed with the purchase at the fall of the auctioneer’s hammer.
Auctions are often used to sell items that may have defects, though auction sales are increasingly becoming a normal method of selling for the highest possible price (Ebay, for instance, is today’s popular ‘go to’ auction online marketplace). Given the possibility that an item being auctioned may have defects, bidders need to be careful to inspect the item or property where possible, and exercise ‘due diligence’ before bidding.
There are specific steps to be taken before the auction takes place. The auction should be advertised so that potential bidders know where and when it is taking place. The name and the address of an auctioneer should also be clearly stated. There should be an auction catalogue available in advance of the auction for the prospective bidders to review its contents. There can also be online or postal auctions.
What are my statutory rights after the fall of the hammer?
It depends on a number of factors. If you buy brand new goods from a trader at a public auction, you have clear legal rights and a number statutory remedies available under the Consumer Rights Act 2015. The law sets out what is required from traders and what your rights are if the trader breaches any of their legal duties.
However, if the item being auctioned is second hand, and you can buy the item at the auction in person, these legal rights under the Consumer Rights Act 2015 do not apply. Instead, the Sale of Goods Act 1979 (SGA) will still apply. Under the SGA, the item must match its description, be of satisfactory quality, and fit for purpose. If the item fails any of those standards, you have the legal right to return it for a repair, replacement or refund. However, the rights and remedies available under the SGA are more limited than under the 2015 Act.
In addition, auction contracts are exempt from the usual right to cancel the contract within 14 days where the buyer is able to attend the public auction.
Is the auctioneer or auction house ever liable?
The contract on an auction sale is with the seller, not the auctioneer, so contractual liability remains with the seller. However, the auctioneer may be liable as a bailee, and/or for misrepresentation, for instance, if the description of the goods was exaggerated. The auctioneer can also be liable for negligence if, for example, the seller’s instructions are ignored; and liability can also arise if there is fraud.
Sometimes, the auctioneer and/or the auction house can be prosecuted for criminal activity around an auction, including fraud. Fraud may arise where an auctioneer pretends to accept bids which have not been made, and you could have a claim against him in relation to the deposit (and interest). The buyer can take legal action for fraud, and criminal prosecution for fraud can also follow.
Under the Auctions (Bidding Agreements) Acts 1927 and 1969, it is a criminal offence for a dealer in an auction ring to give an inducement or reward to someone who abstains from bidding at an auction sale, and for that person to accept that inducement or reward.
Criminal liability can also arise under the Trade Descriptions Act where an item is falsely described.
Land and property auctions
Where land or property is to be sold at auction, the seller’s solicitor will prepare a sales pack which will be made available to bidders prior to the auction. This pack should contain all important information about the property, including information about the state of the property, searches, plans, and so on. Buyers often instruct their ownlawyerto check the sales pack (and to attend the auction itself), so that they have the benefit of expert legal advice before deciding whether to bid. For instance, there may be important restrictive covenants and rights of way affecting the title which you need to know about.
The sales contract itself may contain specific additional conditions, such as a short completion date, fees to be paid, and so on. After the fall of the auctioneer’s hammer, the seller has no responsibility to rectify any defects on the property, and the buyer is bound by the terms of the contact.
What are the seller’s and buyer’s rights?
The main benefit for the seller is that on the fall of the hammer contracts are ‘exchanged’, and the buyer must pay the required deposit (usually 10% of the purchase price), and both parties are legally bound to proceed with the transaction. The seller can, however, in certain circumstances get out of the contract, for instance, if the buyer doesn’t produce the money required for the deposit.
Completion must usually take place within 28 days, though the seller can stipulate an earlier date if required. If the buyer fails to complete – the seller is legally entitled to keep the deposit.
Buying and selling land and property at auction involves many legal implications, and expert advice from a property solicitor should be taken.