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1st August, 2022 by Emma Marston
At common law, there is a principle known as “caveat emptor” which is Latin for “let the buyer beware”. It means that a seller is under no general obligation to disclose information to a buyer and it is up to the buyer to make their own searches, enquiries, inspections and investigations before they commit to a purchase. However, this does not absolve the seller of their duty to disclose any hidden title defects that they are aware of in relation to a property.
In SPS Groundworks & Building Ltd v Mahil , a plot of land subject to an overage provision was sold at auction but the buyer was able to rescind the contract after the High Court ruled that the seller had not complied with their duty of disclosure.
The property’s title included a restriction that prevented registration of any disposition of the property unless the buyer complied with the terms of an overage deed - which required the buyer to pay the seller 50% of any uplift in value attributable to a future planning permission to develop the property. Nonetheless, the property was advertised in the auction catalogue as having “excellent scope for development”.
Official copies of the property’s title register and a copy of the overage deed were included in the auction pack, which had been well publicised before the auction. They were on the auction website alongside each property’s description; a sign at the auction encouraged bidders to read the legal pack; and before the bidding began, the auctioneer told those assembled in the room that it was their responsibility to have read the legal pack.
Despite this, the buyer did not view the auction pack before bidding on the property and only discovered the existence of the overage provision the following day when she downloaded the auction pack. She then refused to complete and the seller sought to recover the shortfall between the £130,000 agreed price and the sum which the land fetched on a later sale.
The trial judge ruled in favour of the seller, stating that the buyer should have studied the legal pack before bidding. However, on appeal to the High Court, the judge ruled that the overage provision should have been specifically brought to a potential buyer’s attention.
References in the brochure, and by the auctioneer, to the need to read the legal pack were not sufficient to discharge the seller’s duty of disclosure where there is a defect in title.
In such cases, said the judge, a seller cannot rely on the principle of caveat emptor: the seller’s duty of disclosure prevails and simply giving the buyer the opportunity to see the property’s title does not go far enough. The overage clause should have been brought to the bidder’s attention by description in the sales particulars, an addendum notice (as had occurred at the second auction), or by the auctioneer. In the absence of specific reference to a defect, a buyer may assume that entries on a register of title or elsewhere would be “the usual sort of entries which would not significantly affect the value of the property.”
Prior to this decision, many lawyers would not have regarded an overage provision as a defect in title in the traditional sense: it is not something that can be dealt with through indemnity insurance, for example, nor does it bind a buyer in the same way as a restrictive covenant or an easement.
Some commentators believe that the decision is misguided and that it will be confined to auction sales in the future, or to the particular facts of the case. By stating that the property had “excellent scope for development …….. making a superb investment opportunity”, the seller clearly overstated the development potential of the property but the court ruled that these were merely statements of opinion, qualified by the words “subject to planning permission” so that there had been no actual misrepresentation in the auction catalogue.
However, for now it now appears to be incumbent on sellers to ensure, not just on auction sales but on all property sales, that all defects in title are expressly brought to the attention of the buyer regardless of whether they are also disclosed in the title.
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