THE current economic climate offers opportunities for those wishing to buy property at reduced prices.
There are plenty of bargains for those with money to spend. However, acquisitions of this type are not without their risks.
If the price is so low that it is significantly less than market value – what is known in legal terms as a “transaction at an undervalue” – there is a chance that the purchase could be reversed by a court at a later date.
Buyers who are in search of property bargains need to be aware of the risk and put safeguards in place.
If your purchase is a transaction at an undervalue, and if you bought it from an individual who is subsequently declared bankrupt, then the deal is at risk if it took place within five years of the presentation of the bankruptcy petition.
If the vendor is a company, then the risk lasts up to two years afterwards. If the company becomes insolvent during that period, and if it can be shown the business was having trouble paying its bills when it sold the property to you, or if it ran into difficulties as a result of the sale, then again the deal can be set aside by a court.
In the current climate, the risk of insolvency is very real and therefore so is the risk of having a deal set aside.
This is not to say that investors should not make the most of the opportunities that are out there – but that they should be more cautious when doing so and take steps to safeguard against the risk.
When buying properties like these, make enquiries to establish whether the price is less than the market value and, if you believe that it is, then carry out due diligence on the seller to satisfy yourself that their financial position is stable and they are not insolvent or about to become so as a result of the purchase.
It’s also a good idea to obtain a Statutory Declaration of Solvency from the seller.
However, in the current financial climate, it may not be possible to carry out due diligence or obtain a Statutory Declaration of Solvency, or even to rely on the information provided.
Therefore, if you consider that the transaction may be at an undervalue, our advice would be to obtain insurance.
