Case studies
Manchester searches
A block of flats in a freehold building in Manchester was up for auction.
Located within walking distance of many major public transport routes, such as Manchester Piccadilly, which is both a train station and a metrolink stop. The property required full refurbishment and the owner wanted to sell as was retiring and moving abroad.
George, a local IT professional, was interested in buying the properties with a plan to refurbish and let out to professional tenants similar to himself. He viewed the properties together with his builder who reassured that the building is in a good condition and later provided his quote for the refurbishment works.
The legal pack uploaded by the auction house was limited to just a few documents containing Land Registry, EPC certificate and Special Condition of Sale. George read the documents and found those straightforward, hence decided that a solicitor pack review won't add any value.
He contacted his broker and lined up a lender who offered both bridging and long-term finance. George bid at the auction and got the property, however, almost missed the completion deadline. The bank refused to lend referring to the issues identified during the searches they completed so George had to find an alternative source of finance.
It is important to note that the content of the legal pack will have an impact on an investor's ability to raise finance. Often a legal pack meets just minimum legal requirements and does not include some of the searches (Local authority search, Environmental, Water and drainage, coal mining, Chancel) which highlight specific issues with the property. Bank may take indemnity insurance in case of limited searches to be able to lend on the property. However, not all absent searches can be covered by such insurance. As a result, the investor is exposed to the risk of being unable to complete the auction purchase using bank lending.
Before handing over the legal pack to solicitor, it is advisable to figure out what it contains and which documents are missing so the latter can be requested promptly for the solicitors' review or an alternative solution found.
Our due diligence report includes checking whether any searches are missing. It also summarises the key terms within the legal documents, helping you to stay informed and focused.
Knotweed in Reading
Two mixed-use buildings were up for auction in Reading. At the time of the auction, one building was being let to a Japanese restaurant and the other, a charity organisation. Both buildings were located in a prominent area with an affluent footfall, close to the train station and were let out on a medium to long term basis. All these factors contributed to a strong case for obtaining finance.
Emily, whose name has been changed for this case study, was not a local investor, however, knew the area is up and coming. The mixed-use buildings' guide price appeared to be much less than their market value. Noticing such a beaming potential of the buildings, Emily asked her solicitor to review a legal pack, contacted her finance broker to request a lending quote and went to view the property and talk to the tenants.
The solicitor report on the legal pack review, costing her £500, reached promptly a few days later. There were no major issues found apart from the advice to investigate the potential presence of Japanese Knotweed as historically the sites were affected. Japanese knotweed is an aggressive plant, which can cause serious structural damage, in turn, causing banks to refuse to lend.
Emily made a call to the solicitor to discuss their recommendation. Surprisingly, the solicitor informed her that this was a standard clause and they have no evidence of the historic presence of Japanese knotweed at the site. Most people would accept this statement and go ahead with the bidding, as financially the deal was sound with no major issues. This was 4 days before the auction.
Using her better judgment, Emily chose to investigate the matter further contacting Japanese knotweed Surveyors that same day. She arranged an urgent agreement to survey the properties a day before the auction.
On the auction day, just 15 minutes before the bidding commenced, Emily received a phone call informing her that the properties' sites are heavily infected by Japanese knotweed. Unfortunately, this concluded that finance would not be available for this purchase. She had no time for arranging alternative financing and ended up not bidding despite an amount of time, costs and efforts invested into her research to date.
Our due diligence report includes details on the number of Japanese knotweed cases reported within a certain radius of the property which allows the investor to acquire knowledge on whether the property is at risk. In case of a high number of reported instances, it is recommended to conduct a professional survey specifically focusing on Japanese knotweed issues. Early identification of the issue will enable you to find a solution timely and help to complete the deal.