Seller of land should have pointed out defect in title

A woman who bought land at auction has successfully appealed a High Court ruling that she must make up a seller’s shortfall after she refused to complete the purchase.

Mark Aspin Director and Head of Dispute Resolution reports on this recent case.

The issue arose after the buyer, Ms Mahil, had purchased the land from SPS Groundworks & Building Ltd. The catalogue had described the land as having “excellent scope for development”.

However, there was an overage clause contained in a deed of covenant from 2017, which meant that if planning permission were ever obtained to develop the land, 50% of the subsequent increase in value would be payable to the original owner.

This meant that there was not actually a lot of potential for profitable development of the land.

The overage clause was not referred to in the auction brochure, which instead suggested that potential buyers should read the legal packs for the specific properties they were buying.

The legal pack contained a copy of the deed of covenant, but Mahil didn’t see it as she was unable to download a copy from the auction house website.

She only found out about the overage charge after she had won the bid and paid a deposit.

Mahil refused to complete, and SPS resold the land at a later auction, this time with the overage charge referred to in the property description.

The land sold for a lower price at the second auction, so SPS took legal action against Mahil to recover the shortfall.

Mahil claimed that SPS had failed to disclose any defect in title. She argued that the statement in the listing that the land had “excellent scope for development” was a misrepresentation.

The High Court ruled in favour SPS as the defect had been disclosed in the legal pack.

That decision was overturned at the Court of Appeal, which ruled the judge failed properly to apply the principle of disclosure

It was a seller’s duty to disclose defects. That duty was not removed because a buyer did not make relevant enquiries.

The general references in the brochure to the need to read the legal pack did not put the buyer on notice of the defect.

Mahil was entitled to assume that the seller had complied with its duty of disclosure and that the legal pack would reveal no unusual defects.

The overage clause should have been specifically brought to the attention of potential purchasers by description in the particulars, addendum notice, or specific reference by the auctioneer.

No reasonable person could equate the seller’s belief with there being “excellent scope” for development: that representation was false and was designed to induce a purchaser to buy the land.

If you would like more information about the issues raised in this article please contact Mark on 01228 516666 or click here to send him an email.