Does a bargain price make a good deal?

James Griffiths, a partner in the commercial property department at Ashton Graham Solicitors, warns that there is more to a successful purchase than a low price

OVER the past year or two property values in general have fallen, leaving many developers and investors with cash available biding their time for the right opportunity to purchase property.

Trading conditions in various sectors of the economy remain difficult and many distress sales are featuring in the commercial property market. Potential purchasers are often taking the opportunity to purchase not only at the right price, but possibly at a bargain, in circumstances where the seller is under pressure to sell.

However, whilst the seller may be keen to sell and raise cash at a price that the buyer considers to be a bargain, a buyer should not become carried away over a perceived low price. There are always issues to consider when purchasing property, including title matters, the condition of the property and the buildings on it, planning, environmental, and other regulatory matters.

When involved in a distress sale deal there is frequently less time to carry out the required title and other property investigations, and the buyer should consider the seller's status, as well as the usual issues.

If the seller is insolvent or approaching insolvency, a court may need to approve the sale. If the seller is close to insolvency it may be in a position to complete the sale, but this could later be set aside by the court as a sale at an undervalue, if the seller subsequently becomes insolvent.

Where an insolvency practitioner is involved, the buyer will need to check that a proper appointment has been made and that the insolvency practitioner has the power to sell the property, again to avoid the transaction being set aside by a court.

The best advice has to be that even if it is agreed to conclude a purchase swiftly, buyers and their professional advisers should carry out all possible due diligence through raising enquiries - whether or not useful replies are received.

They also need to conduct all the relevant searches of the local and other statutory authorities, the local planning department and the Land Registry. A newly appointed insolvency practitioner may not have much information available, but one who has been appointed over a period of time should at least have some knowledge of the property.

The property will of course only be a bargain if it is obtained for a price which takes into account all risks associated with it. Simply because the transaction is concluded swiftly does not mean that the due diligence process should be curtailed, rather that the buyer should be extra cautious.

Ashton Graham is authorised and regulated by the Financial Services Authority. Ashton Graham Solicitors is regulated by the Solicitors Regulation Authority No. 50075. This article is for general information purposes only and does not constitute legal or other professional advice. You should not act or rely upon this information.