“Buyer beware” vs the duty of disclosure when selling a property

The principle of caveat emptor, “buyer beware”, means that the onus is on the buyer to find out everything it needs to know about the property before buying it or becoming committed to buy it. There are a few exceptions to this rule, one of which is the seller’s duty to disclose latent defects in title.  The scope of this duty was tested in the recent case of SPS Groundworks & Building Ltd v Mahil[1].

Facts

The buyer successfully bid on a piece of land at auction that had been described in the auction catalogue as having “excellent scope for development”, with the intention of building a home on it.  The buyer later discovered that the land was subject to an overage clause contained in a deed of covenant, providing for payment to the Co-operative Limited of 50% of any increase in the Land’s value attributable to obtaining planning permission.  A copy of the deed of covenant was included in the legal pack prepared for auction but the buyer omitted to download it.  Neither the auctioneer nor the auction brochure referred to the deed, although both suggested that all potential purchasers should read the legal packs for the properties on which they were bidding.  The buyer also discovered after the auction that four fifths of the land could not be built on as it was registered by the council as a local green space and was therefore protected from development.  Once the buyer learned of these defects, it refused to complete the purchase. The seller later re-listed and sold the property at auction for considerably lower than the purchaser’s original bid, and the seller sought to recover the difference from the buyer.

Decision

The trial judge took the view that according to the principle of “buyer beware”, the purchaser should have studied the legal pack containing the overage provision and had they done so they would have purchased the property in full knowledge of the defect.

On appeal however, the judge found that the references in the brochure and by the auctioneer to read the legal pack were not sufficient to comply with the duty of disclosure.  Full and frank disclosure required the overage clause to be specifically brought to a potential purchaser’s attention by description in the particulars, addendum notice of the type produced at the second auction, or specific reference by the auctioneer.[2] In the absence of specific references to defects, a purchaser could assume that entries on the property register or in the relevant documentation would not significantly affect the property’s value.[3] The judge also noted that disclosure cannot be circumvented by including a condition on the contract deeming the purchaser to have knowledge of the defect.[4]

Takeaways

The case highlights the importance ensuring that title defects are disclosed when selling a property.  Whilst it is usual for full due diligence to be carried out by the buyer’s solicitor, this case is a reminder of the seller’s duty to advise the buyers of any defects in title and how far they must go to draw the buyer’s attention to them.

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[1] [2022] 2 WLUK 314

[2] Ibid, paragraph 8

[3] ibid, paragraph 67

[4] Ibid, paragraph 67