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Court finds that full and frank disclosure required defect in title to be brought to potential purchaser’s attention

A recent High Court decision has called into question the level of disclosure required when selling land at auction after finding it insufficient for a seller to merely include reference to an overage provision, which amounted to a defect in title, in the legal sale pack.

Instead, according to Mr Justice Cotter, “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… or specific reference by the auctioneer.”

The Facts

The dispute concerned a plot of land located in the village of Stoughton, Leicestershire which was auctioned for sale in 2019. Ms Mahil (the “Appellant / Buyer“) was the highest bidder after making an offer for £130,000. However, despite signing a memorandum of sale and paying a deposit of £13,000, the Appellant subsequently refused to complete after it emerged that there was an overage clause affecting the title which would have meant further cost was payable by the Appellant upon completion.

Whist reference to the overage clause was made in the legal pack which was prepared for potential bidders, the Appellant did not review this prior to the auction taking place on 12 February 2019 and did not read the hard copy legal pack present at the auction itself. Likewise, the Appellant did not review the terms and conditions included within the auction catalogue which explained that:

“The lot is subject to all matters contained or referred to in the documents… the buyer accepts the title of the seller to the lot as at the contract date, and may raise no requisition or objection to any of the documents that is made available for the auction or any other matter except one that occurs after the contract date.”

On 13 February 2019, the day following the auction, the Appellant successfully downloaded the legal pack, discovered the overage clause and refused to complete on the basis that SPS Groundworks & Building Limited (the “Respondent / Seller“) had failed to disclose a defect in title and had induced her into entering into the sale contract by misrepresentation.

At first instance, the judge found in favour of the Responded finding that it had fulfilled its duty to disclose the overage clause by including it in the legal pack as well finding that the auction conditions were properly incorporated into the contract for sale.

The High Court’s Judgment

Allowing the appeal on the basis that the Seller had failed to disclose a defect in title, whilst rejecting the argument regarding misrepresentation, Mr Justice Cotter found that the Seller had failed to comply with the duty of disclosure. In doing so, he acknowledged that the auctioneer had emphasised the need to read the legal pack to potential bidders but noted that this was not enough to satisfy the disclosure duty.

In particular, when addressing the auctioneer’s direction to the legal pack as a reference to the existence of the overage clause, Mr Justice Cotter noted that:

“[such] references were made in respect of all 35 properties for sale and the Appellant was not out on any notice of any unusual feature of title in respect of this particular lot… 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… or specific reference by the auctioneer.”

Likewise, confirming the nature of the obligation on a seller to disclose more generally, Mr Justice Cotter explained:

“It is a well-established rule of equity that a vendor of a property has a duty of disclosure in respect of defects to title… In the absence of proper disclosure contractual conditions cannot be relied on to save the vendor. The equitable principle of disclosure cannot be circumvented by the inclusion in the contract of a condition deeming the purchaser to have knowledge of the defect.”

Why is this important?

The case is a useful reminder of the specific disclosure requirements where a property is to be sold by auction. In particular, sellers should be aware that it is insufficient for them to merely include matters such as overage provisions within a legal pack of documents and instead they must look to actively highlight them to prospective buyers.  Furthermore, the judgment reiterates the point that the principle of caveat emptor does not apply to defects in title and instead a seller’s duty of disclosure outweighs this.

If you have any questions in relation to the case, or wish to discuss any other aspect of property litigation, please click here.

Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.

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