Blog: Homes under the hammer

Jamie Robertson looks at the pitfalls associated with a new trend in transferring heritable property.

A Cumbernauld home owner hit the headlines in June when he put his £825k mansion up for sale in a raffle to be won at just £5 a ticket. PayPal then cancelled the raffle recently as it breached the terms of its site.

The method of raffling a house did however prove to be successful south of the border when a couple from Warrington won a six bedroom Lancashire manor house, valued at £845k, for just a £20 raffle ticket.

Sounds simple, buy a small price ticket for a big label house – but there are various issues that can arise..

1) The legality of holding a raffle

The raffle may need a licence from the Local Authority to be held. Let’s be clear, this is not relevant to your local Rotary’s bottle raffle. This refers specifically to the legal requirement to have the consent of the Council, for the selling of property in this manner. Crucially, every Council has different rules and regulations in relation to this matter; so taking proper legal advice from the outset is a must.

2) What happens if you do not sell enough tickets?

Every property has a monetary value, and most people take out mortgages to pay for the purchase. Therefore, every seller will have a point where they pay off their said loan and ‘break even’. Chances are, the seller will try to sell more tickets than they need to break even, and ultimately will seek to make a profit. Think about it from the buyer’s perspective, what do the contract terms say happens to your raffle ticket, should the sale not go ahead; either because not enough tickets are sold, or the seller gets an offer from a third party purchaser, not connected to the raffle?

If the T&Cs don’t provide a resolution for a situation like this, and should the seller try to keep the funds raised, they are potentially opening themselves up to hundreds, if not thousands, of court actions to recoup the costs of the would-be-purchasers, who bought raffle tickets in good faith. Just this one example shows how important it is to seek proper legal advice, especially if you are thinking about holding one.

3) How do you publicise your raffle?

The most successful methods of marketing a property for sale are with an estate agent or Solicitors’ Property Centre. These are tried and tested methods which maximise exposure for your property, thus giving you the best chance of selling. However, by entering into a raffle, you lose the ability to market your property in this way. So you actually minimise your property’s exposure to potential purchasers (or ticket buyers). This then decreases levels of interest and awareness, which result in fewer ticket sales.

4) The legality of the Terms and Conditions

Drafting a good, legally binding contract is a potential minefield, and notwithstanding the traditional method of selling a property at auction (otherwise known as a Roup), there is a lot that can go wrong if you attempt to draft the T&Cs yourself, without proper legal guidance.

The vast majority of residential property sales in Scotland follow a template called the ‘Scottish Standard Clauses’. These protect both the buyer and seller, providing set terms. If the contract terms are not set down in writing, the default position is what we call ‘Common Law’ – i.e. case law, which as well as being a cure for insomnia, would make bringing any legal challenge very difficult. So, again, please consult a solicitor, as they would be able to advise you on how to draft the T&Cs.

5) Do you have to pay tax?

Although you are buying a raffle ticket at a nominal cost, has the purchaser considered the tax implications? There may be Capital Gains Tax implications when you come to sell, if it is not your main residence.

The above is just a brief snapshot of some of the things to think about, not just legally but practically, when considering buying/selling property in such a way. You can see how something, sold with the best of intentions can quickly become highly contentious. The overriding message to take away here is, if you are thinking about this as either a buyer or seller, consult a solicitor first.