Consider these questions:
- when does an auction take place?
- what makes one begin to happen?
- how is a property passed-in at an auction?
- how does this differ from the property being withdrawn?
The answers are important for residential land sales and for estate agents.
In the case of Ma v Francis  NSWSC 1224, Ms Ma was selling her house in Sydney, with an on-site auction set for 10:30am one Saturday morning, late autumn. The neighbours turned up, but there was only ever one registered bidder – Mr Francis. Prior to 10:30am, Ms Ma decided to negotiate with Mr Francis. She also wished to keep open the possibility of an auction to generate some tension in the negotiations. At about 10:30am, the auctioneer informed the assembled that the auction had not begun. Negotiations continued.
Time passed, no bids were called for, and the auctioneer disappointed the neighbours by announcing that the "show is not going to take place just now". Everyone, aside from Mr Francis, went home. The same day, a price was agreed. It exceeded $5 million, contracts were exchanged and 10 per cent paid. A few days later Mr Francis rescinded, exercising a claimed statutory cooling-off right, and requested his deposit back less the cooling-off fee. Ms Ma refused claiming that Mr Francis' conduct fundamentally breached the contract. She purported to terminate and to keep his deposit.
Cooling off and auctions for residential property
If a residential property sells at auction, or is passed in but sold that day, no cooling-off period applies – section 66T(c) of the Conveyancing Act 1919. If there is no cooling-off period, Ms Ma would be entitled to terminate. Conversely, if there was such a right, Mr Francis was to be refunded his deposit.
Section 66T(c) applies where two conditions are satisfied. First, the property must be "offered for sale by public auction" – the auction at least needs to start. Secondly, the property must be sold on the same day as the auction started, but where the property has passed in.
An auction is said to commence only if a property is offered to the public in a competitive process where the assembled "have the opportunity to bid and rebid for the property on the basis that a sale [may] be made to the highest bidder". To commence the process the auctioneer needs to formally open the proceeding which is typically done by requesting bids from the assembled. An advertised auction time and a gathered crowd alone will not do.
The property is considered to be passed in if, after the auction starts, it stops without a sale. This could be because a reserve is not reached, or because no bids are made, or if no one is registered when it starts and no one registered after it has started.
If an auction does not formally commence, and the property is sold to a person even if this sale is made during the period when the auction would have been taking place, and even to a registered bidder where there are no other registered bidders, an auction has not occurred. While the property is still lawfully sold, it is a private sale and the property is said to be 'withdrawn' from auction. This means that, unless the vendor obtains a certificate waiving any cooling-off period, the purchaser obtains cooling off rights.
In the case, Mr Francis received his deposit back.
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.