QIA | December 19, 2023

Buying property from administrators – distressed asset sales

Administration is a procedure under insolvency legislation to provide a company, limited liability partnership or partnership with some breathing space to allow a more advantageous realisation of assets to be put in place.

These assets could be interests in property and in such a case, the administrator will take on the management of the property and will also have the ability to dispose of it. Acquiring property from an administrator can be an attractive option for investors; however there are several points that should be considered and the decision should be based on the buyer’s individual circumstances, risk tolerance and investment objectives.

Speedy transaction

An administrator might be under pressure to dispose of property assets quickly to secure cash flow, settle debts and distribute assets amongst creditors. For these reasons, administrators are often motivated to progress the transaction which can lead to a quick sale process. Any sale will usually be on an unconditional basis too.

This can be an advantage for investors who are able to complete a purchase quickly – such as a cash buyer of a property in good repair condition that has a tenant lined up to occupy as soon as possible. However, the tight timescales can also be a concern since there may be limited time to fully review the information available and no time to arrange other things while the due diligence progresses, such as planning applications for any intended works.

Limited information and lack of warranties

Administrators often have not managed the property for very long and will usually not have ever occupied the specific property being sold, so might not be able to provide detailed information about its history, condition, or potential issues in the same manner as a seller in a non-administration sale.

Properties sold by administrators are typically ‘sold as seen’. This is a reference to the expression “caveat emptor” or “buyer beware” and means that the onus is on the buyer to fully investigate the potential risks of the property with no assurances from the seller. For example, the buyer will assume all the risks relating to the property’s condition. If timing permits, buyers would be well advised to carry out a full structural survey to be aware of any renovation costs or repairs that could have an impact on the overall investment.

Buyers should not expect any guarantees, warranties or indemnities. This again means the buyer will need to conduct their own due diligence and rely on the documents that are made available (if any), often needing to make decisions based on the limited information provided. For instance, administrators may not be able to guarantee vacant possession and the buyer will need to establish if any third party occupies and the terms of that occupation. Vacant possession also implies that no items are left at the property. As the administrator will not give this confirmation, the potential cost and time of removing any unwanted contents may need be taken into account.

Exclusion of the administrator’s personal liability

An administrator will also expressly exclude any personal liability, meaning that the administrator will not be personally liable for breaches of contract after completion. If a breach of contract occurs, the buyer cannot pursue the administrator on a personal basis and may only have recourse to the owner of the property. That owner is in an insolvency process so any action against them may be worthless. It may be possible to negotiate specific contractual measures from the administrator to cover specific issues, such as collecting rent arrears in the period before completion, however this too is unlikely.

Finance options

Due to timing pressures and the limited information available it can be challenging to arrange financing for this type of purchases via a traditional lender. Most lenders will require extensive due diligence on the property prior to releasing the funds. Prior to making an offer on a sale by administrators it is important to discuss the circumstances of the purchase with the prospective lender.