“Buyer beware” – how far does that protect a seller?
“Caveat emptor” is probably the best known Latin phrase in the world of property; the principle of “let the buyer beware” places the buyer under an obligation to discover any physical defects in the property they are buying. But does that apply to title defects as well? Does the seller have a duty to highlight issues in the title deeds or can they rely on caveat emptor?
These were the questions raised in the recent case of SPS Groundworks and Building Ltd v Mahil  where a property which was sold at auction was discovered afterwards to be subject to an onerous obligation.
Facts of the case
Mrs Mahil (M) bought a plot of land at auction for £130,000 plus VAT without reading (or taking legal advice on) the auction pack which included copies of the title deeds. After the auction M checked the title and discovered that it was subject to a restriction which secured an overage liability. This meant that if planning permission was granted for development then 50% of any increase in the value of the land attributable to that permission would become payable. As M had bought the land with the intention of building a house on it, she refused to complete the purchase.
The seller (SPS) claimed M was in breach of contract by refusing to complete and kept the 10% deposit. SPS then re-sold the property at a subsequent auction at a considerably reduced price of £75,000 plus VAT. At this second auction, the overage payment was included in the property description, plus the auctioneer made an announcement about it. SPS then claimed the shortfall in the sale price from M. M counterclaimed that she had not been told about the defect in title and that she was induced into the purchase through misrepresentation.
There was no argument that the overage liability was a defect in title and as such had to be disclosed by the seller. SPS had disclosed the overage restriction in the auction pack and had even included a copy of the overage deed as well, but there was no mention of the overage in the auctioneer’s brochure or before the lot was put up at the auction. The main question was whether SPS had done enough to satisfy the seller’s duty of disclosure.
The judge at first instance supported the principle of “caveat emptor” as the overage clause was included in the auction pack. M should have downloaded the pack from the auctioneers site (which she claimed she could not do before the auction) and as an experienced property developer, she would understand the importance of checking the title deeds before buying. M appealed.
M’s appeal to the High Court was successful. The appeal judge held that the seller’s duty of disclosure means that defects in title should be highlighted otherwise the buyer may assume that the title does not contain entries which would significantly affect the value of the property. Advising buyers to read the legal pack was not sufficient to comply with the duty of disclosure. The overage clause should have been specifically highlighted (as had happened at the subsequent auction).
The misrepresentation claim was dismissed because on the facts, M was determined to buy the land in any event and did not rely on statements in the marketing literature.
Although the auction terms and conditions of sale contained the usual stipulation that the land was sold subject to the matters contained or referred to in the auction pack, the judge pointed out that SPS could not rely on this. The law does not allow a contract condition to enable a seller to avoid its responsibility to disclose defects in title of which they are aware. M was therefore able to rescind the contract and recover her deposit.
The decision is surprising in many ways, considering that the overage was plain to see from the title deeds in the auction pack and there was no attempt to conceal the defect. The question for sellers now is how far do you go to ensure the buyer is aware of any defects? It also raises the question of what is a “defect in title” - overage and options are obvious ones, but should commonly seen easements and covenants be regarded in the same way?
It is clear that for auction sales, any defect or adverse entry on the title should be highlighted in the marketing material, auction packs and on the auctioneer’s website as well as announced at the auction itself. However, the law on which this decision was based applies to all sales and is a reminder that:
- caveat emptor does not apply to defects in title and the seller cannot contract out of its duty of disclosure;
- the duty of disclosure exists irrespective of whether the buyer raises enquiries about such matters.
It is definitely worth remembering that in relation to title issues another Latin phrase may be more appropriate: “caveat venditor” (let the seller beware!).