New auction law and its impact on real estate transactions

Starting January 1, a new Public Auctions Act will come into effect, bringing changes for everyone involved in auctions, whether you're an auctioneer, realtor, or regular participant. Whether you're conducting or participating in auctions, these new rules could significantly impact your business. What new obligations are coming? What will change? The new regulations are just around the corner—be prepared!

Which Auctions the New Law Applies To

The new auction law will apply only to specific types of auctions, namely auctions conducted by professional auctioneers (usually business entities), provided they meet the definition of a public auction: "A public auction is an auction where the auctioneer invites an undetermined group of people to a designated location to submit bids with the goal of concluding a purchase contract or a future purchase contract with the person who offers the best bid under specified conditions."

Therefore, the law does not apply to auctions held among a closed group of people. For instance, if a real estate agent conducts a bidding process among a few pre-selected potential buyers to determine the highest offer, this falls outside the scope of the new auction law. Similarly, the new law does not regulate auctions aimed at concluding contracts other than purchase contracts, such as lease agreements. The law's focus is on purchases in a broader sense, meaning the subject of an auction could be, for example, the purchase of a co-ownership share or a membership share in a housing cooperative.

Conceptual Changes to Auctions

One of the major changes introduced by the new law is a shift in the concept of public auctions. While ownership rights used to transfer through the auction itself, under the new law, ownership is transferred through the completion of a sale. The new law aligns with the Civil Code, which views an auction as a special way of concluding a contract.

However, don't be misled—no actual "contract" will need to be signed after the auction. All contractual conditions will be included in the auction notice, and the contract will be considered concluded at the moment the auctioneer confirms the highest bid. After the auction, the auctioneer will issue a certificate of the contract's conclusion to the buyer, who won the auction and paid for the property. This certificate will serve as the basis for the change of ownership in the land registry.

Impact on Ownership Transfer

The buyer of the auctioned property will only become the owner once the transfer is recorded in the land registry, just like in a regular sale. This means that the auctioneer's confirmation alone is not sufficient for ownership transfer, and the subsequent entry into the land registry will not be just a formality.

Together with the transfer of ownership, certain liens and other rights listed in the certificate of contract conclusion may be removed from the property. The buyer should ideally submit a request for the removal of these rights along with the proposal for ownership transfer.

If, in the meantime, something happens that would prevent the transfer of ownership, such as the property being seized due to an enforcement action, the auction law allows the buyer to withdraw from the contract concluded by the auctioneer.

Electronic Auctions and Auction Records

Public auctions can still be conducted in the traditional way, with participants physically present, or electronically over the internet. A new feature is the introduction of a central public auction registry, which will be managed by the Ministry of Regional Development. This publicly accessible registry will contain information about auctioneers and auctions, making it easier for interested parties to find information about announced auctions.

Forced Auctions

A forced auction is a tool used for forced sale of assets as part of a creditor’s enforcement of lien rights. A forced auction is initiated not by the owner of the property but by a creditor with an enforceable claim. The rules for forced auctions are stricter than for voluntary ones (requiring an auctioneer’s license, restrictions on managing the property, a ban on the Dutch auction method, special rules for defective performance claims, etc.).

Once the property owner is informed that a contract has been concluded between the creditor and the auctioneer to conduct a forced auction, the owner is prohibited from disposing of, encumbering, or taking any legal actions concerning the auctioned property that would create new debts or encumbrances diminishing its value or limiting the ability to manage the auctioned asset.

This notification will also be sent to the land registry office, which will publish information about the forced auction in the form of a note on the property's ownership record. The purpose of this note is to inform third parties that the owner is restricted in dealing with the property.

Defective Performance Rights

One of the key differences between forced and voluntary auctions is that buyers in forced auctions do not have rights related to defective performance. This means that if the auctioned property has defects, the buyer has no right to a price reduction or other compensation. Therefore, it is advisable for auction participants to carefully inspect the property's condition before the auction.

In voluntary auctions, defective performance rights remain, including consumer protection when purchasing from a business, such as a developer.

Real Estate Auctions and Bidding

The new law will also affect real estate auctions. Although the terms auction and bidding are often used interchangeably, in auction practice, they have different meanings. Traditional auctions were regulated by the current (old) auction law, while bidding followed the Civil Code.

The new law unifies the rules, and any activity that meets the definition of a public auction (business entity, undefined group of people, designated location, call for bids, purchase contract or future purchase contract) will be subject to public auction rules, regardless of whether it is labeled as an auction or bidding.

For so-called auctioneers who previously conducted auctions outside the public auction law, this means adapting to new rules, including obtaining a tied trade license, mandatory liability insurance, and updating electronic auction systems. Additionally, auctioneers will need a special account for funds obtained during auctions, which can only be used according to the rules set by the law.

Auctioneers will also be subject to inspections, and violations of the law may result in penalties, including fines or suspension of business. These measures aim to increase transparency in the auction market and promote fair auctioneer behavior.

Auctions Conducted Under Execution Laws

Certain auctions conducted under procedural regulations, such as enforcement or insolvency proceedings, will continue to follow a special regime. However, these regulations usually allow for auctions to be conducted under public auction rules, as seen in Section 286(1)(a) of the Insolvency Act.