There is a well-known common law principle called “caveat emptor”, which means “let the buyer beware” and places the onus on the buyer to investigate the title to the property before purchasing it. However, there is also a common law duty on the seller to disclose defects in the title.
The case of SPS Groundworks & Building Ltd v Mahil  EWHC 371 (QB) provides new guidance on how far a seller needs to go to fulfil its duty of disclosure. The buyer in this case was successful in her appeal at the High Court that this duty was not fulfilled.
A property was sold at auction and described as having “excellent scope for development”. The seller omitted in the auction brochure to refer to the presence of an obligation in a deed to pay overage to a third party in the event of any increase in the value of the property attributable to obtaining planning permission.
However, a legal pack for the property could be downloaded from the auctioneer’s website which included a copy of the deed where the overage obligations arose and an official copy of the title register which revealed a restriction protecting these overage provisions.
The buyer viewed the property in person but did not review the legal pack before making her bid at auction. Immediately after winning the bid and exchanging contracts, a representative of the local parish council approached the buyer informing her that the property could not be built upon.
The next day, the buyer downloaded the legal pack and discovered the deed containing the overage provisions and refused to complete on the purchase. The seller later sold the property at a second auction at a lower price and brought County Court proceedings against the buyer for the shortfall.
The seller’s claim was initially successful but, on appeal, the High Court found in the buyer’s favour on the basis that:
- There is an equitable principle that if there is a defect in the title of which the seller is aware, the seller must provide “full, frank and fair information” to the buyer or a “fair and proper opportunity to become aware of the defect”.
- The parties in this case accepted without challenge that the overage provisions are a title defect so there was no further discussion or guidance as to what amounts to a “title” defect. However, the historic cases that the judgment relied upon referred to any “liabilities which would materially reduce its market value” and everything “which is likely to influence his mind in determining whether he will buy or not”. Reference to standard terms and conditions pointing to the need to read the legal pack is not sufficient. The seller must make specific reference to any defect in title that it is aware of, e.g. when the property was sold at the second auction the seller made a “late amendment” to the property description including specific reference to the overage provisions and this was read out by the auctioneer.
- If no defects are specifically disclosed, the buyer may assume that there would be no unusual defects revealed in the legal pack which would significantly affect the value of the property.
- This duty cannot be circumvented by a contractual condition deeming the buyer to have made necessary searches and enquiries and to have knowledge of the defect.
In light of this judgment, the seller must “beware” as its duty of disclosure cannot be negated simply because the buyer was not prudent in making enquiries. The seller must disclose all title defects that it is aware of.
It is, therefore, incumbent on the seller to be explicit in disclosing issues. Whilst the judgment did not expressly comment on other considerations, it relied on historic case law involving both auction sales and standard conveyances and involving solicitors representing parties on both sides. Therefore, there does not appear to be any evidence suggesting that the heavy onus falling on the seller is merely circumstantial. In practice, conveyancers will need to consider more carefully how they can ensure that the duty to disclose is adequately fulfilled and all defects in title are brought to the attention of the buyer, particularly in the case of auction sales where it will need to be able to mention all relevant defects in the initial auction particulars.
Please note that this information is provided for general knowledge only and therefore specific advice should be sought for individual cases.
For further information, please contact Cherry Ho