The RICS’ common auction conditions, which have already gained the status of an industry standard, have been revised. By Nicholas Redman
A new edition of the RICS’ common auction conditions was published last month. Since May 2002, the conditions have governed transactions in an increasingly large part of the auction market and have gained a reputation for clarity and comprehensiveness. The new edition covers such changes in the law as the 2003 land registration reforms. Crucially, it takes into account the comments made by users in respect of the first edition, which was published in May 2002. Users include not only the leading auctioneers (along with the many surveying practices that undertake local and one-off auctions) but also solicitors and, most important, the sellers and buyers.
The new edition illustrates the coming together of the real estate industry with a view to improving the liquidity of land and buildings as an asset class by introducing a standardised way of dealing with recurring assignments. It follows initiatives such as the publication and continual updating of the commercial property standard enquiries and the plan, led by the British Property Federation (and implemented by many leading industry players) earlier this year, to deal with the underletting of overrented premises. The auction process itself has long played a key role in supplying and maintaining that liquidity. In 2004, the top 20 commercial and residential auctioneers saw a 16% increase in properties sold at auction, with total sales of £3.38bn. The auction market is no longer perceived as being the reserve of the less fortunate; institutionally owned real estate now features in almost every major sale, and banks and building societies now use auctions to dispose of surplus parts of their branch networks.
Inside the conditions
The new edition refines rather than recasts its predecessor. The original reasons for launching the conditions (see box below) remain valid and have guided the revisions.
The new edition maintains the glossary of terms that applies to each part of the conditions: defined terms appear in bold type throughout, and the use of terms such as “you” to describe those attending an auction and “we” to describe the auctioneers affords accessibility. The conditions are something of an auction almanac. They lay down the rules upon which the auction is conducted and so govern the relationship between the auctioneer and the interested parties. They also set out all the terms of any deal made at the auction, either in comprehensive general conditions of sale or in special conditions of sale. The latter are prepared by sellers’ solicitors in accordance with a pre-set template; in most cases, special conditions need to cover only those matters that are specific to the property. The final part of the conditions – the memorandum of sale – is critical.
Although they have been prepared by those involved on the selling rather than on the buying side, the conditions are not entirely one-sided. As a clear distillation of the notices once printed in various places and in catalogues and displayed in auction rooms, they help to level the playing field. In fact, the conditions encourage a greater enthusiasm for buying at auction. They tackle long-held fears that the archaic language in small print in catalogues and in documents referred to (but not set out) in the catalogues contained traps for bidders and numerous let-outs for auctioneers and their clients. Auctioneering firms can make changes to the conditions but, should they do so, they must indicate that the changes have been made.
The new edition retains its predecessor’s breadth of coverage. Lawyers preparing the special conditions for a sale governed by the conditions will generally need only complete the form provided in the conditions. Many auctioneers provide sellers’ lawyers with an online special conditions template in order to ease the transaction. Other parts of the conditions invariably cover everything else (see box below). The level of detail is sufficient to cover all types of property, from the lock-up shop to the sophisticated business park. This – together with the electronic supply of information on specific lots delivered by a seller’s solicitor to interested parties – should reduce the costs of selling at auction.
RICS working party
The conditions owe a great deal to Richard Auterac BSc FRICS, of Jones Lang LaSalle, Paul Clark, a consultant at Cripps Harries Hall LLP, and, of course, the RICS.
The RICS has not only facilitated and overseen the preparation, launch and now revision of the conditions, it has also invested the project with authority and visibility. It has built up a larger working party, comprising representatives from the world of property auctions and the legal profession. That working party has other auction-related projects in hand. It is due to release guidance to lawyers describing how the conditions correspond to the terms now widely used in private treaty sales and the standard commercial property conditions (2nd ed). It is also planning to prepare a form of appointment of an auctioneer, which is intended to dovetail with the conditions.
The role of consumer protection law in property auctions is growing in importance, and the working party is looking closely at this. The conditions are free-standing (they do not incorporate by reference any other terms) and have avoided technical terms. The Office of Fair Trading, though, has argued that words such as “indemnity” and “title” might infringe consumers’ rights, and the Law Commission is advancing plans to bring a greater level of protection both for consumers and for small businesses (see EG, 9 July). Again, the working party is keeping this under review and is aware that the third edition of the conditions might have to look quite different and perhaps refer to “seller’s right of ownership” and the requirement for a buyer to enter into “an obligation of reimbursement”. The principal role of the working party, however, is to collate comments on the conditions in preparation for a third edition.
The conditions have already attained the status of an industry standard. To retain that status, the working party will have to demonstrate that the conditions are made not only for the auction sector but also made by the real estate industry as a whole.
Comments on the second edition should be sent to Kevin Harrigan, of the RICS, at KHarrigan@rics.org.
The common auction conditions are available at www.rics.org/cac; they will also be included in Butterworths’ Encyclopaedia of Forms and Precedents.
Nicholas Redman is a senior professional support lawyer in the real estate group at DLA Piper Rudnick Gray Cary UK LLP
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Original reasons for the launch |
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● To strike a balance between the contractual needs of the seller and the buyer while recognising that the seller will want to determine the principal terms under which it wants to sell ● To make it easier to see all the contract terms within one document, rather than by reference toother documents such as the standard conditions of sale ● To ensure that the contract is as user-friendly as possible by adopting simple headings and by using plain English ● By providing a common set of conditions for all auctioneers in England and Wales and thereby increasing the convenience of going to auction for both buyers and sellers ● To reduce the legal costs to buyers and sellers by using a contract that is in common use, that is easy to read and understand and that comes with a simple-to-complete legal form for the property-specific special conditions of sale ● To highlight the differences in the general conditions used by individual auctioneers, through the need to indicate separately any extra general conditions of sale |
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Matters covered in the Conditions |
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● Incumbrances ● Chattels ●Misrepresentation ● Deposit ● Insurance ● Title (including where the title is in the course of registration) ● Transfer ● Completion ● Default and notice to complete ● Rescission ● Landlord’s licence ● Apportionments ● Arrears ● Management after exchange ● Rent deposits ● VAT and TOGCs ● Capital allowances ● Maintenance agreements ● Tenant’s rights under the Landlord and Tenant Act 1987 ● Seller’s insolvency ● Employees and TUPE issues ● Environmental issues ● Service charges ● Rent reviews ● Renewals under the Landlord and Tenant Act 1954 ● Warranties relating to design and construction ● No dealings with the contract ● Service of notices ● Exclusion of third-party rights |
