Full and Frank Disclosure Trumps Caveat Emptor

In law there is a legal principle known as Caveat Emptor which means “buyer beware”.  Typically, this principle applies to the purchase of goods.  However, the principle can also apply to the purchase of property.  The onus is on the buyer to carry out his own investigations prior to the purchase of the property to ensure he is aware of what he is buying and that there are no defects with the property.

Normally, the buyer would carry out these investigations prior to exchanging contracts with the seller.  However, the recent case of SPS Groundworks & Building Ltd v Mahil illustrates the limitations of this principle and confirms that the seller has an equitable duty to disclose any defects in the title of the property.

In that case Ms Mahil successfully bid for a plot of land at auction.  However, she subsequently refused to complete the sale after it emerged that there was an overage clause affecting the title which required 50% of any increase in value resulting from the grant of planning permission for the land to be paid to a third party.

Whilst there was reference to the overage clause in the legal pack which was prepared for the bidders of the auction, Ms Mahil did not review this prior to the auction nor did she read the hard copy legal pack present at the auction itself.  There was no reference to the overage clause in the auction catalogue and it was not mentioned at any time by the auctioneer during the auction.

As a consequence of her refusal to complete, the seller forfeited Ms Mahil’s deposit and re-sold the land at a lower price.  The seller then pursued a claim against Ms Mahil for its losses i.e. the difference between the auction price and the price the land was subsequently sold for.

At first instance, the Court held that the seller had fulfilled its duty to disclose the overage clause by including it in the legal pack and therefore Ms Mahil was bound by the contract to purchase the land.

Ms Mahil appealed.  The High Court allowed the appeal on the basis that the seller had an equitable duty to disclose all defects in the title and it had failed to do so.  The Judge stated that “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 Judge agreed with Ms Mahil that the defect in the title should have been brought to her attention at the auction before she bid for the land.

This case is a reminder of the specific disclosure requirements, particularly where a property is sold at auction.  It is inadequate for sellers to simply include matters such as overage provisions within a legal pack, instead of actively highlighting the defect to the buyers.

Further, this case reiterates the point that the principle of Caveat Emptor does not apply to defects in title and that the seller’s duty of disclosure overrides that principle.

Blacks Solicitors have experienced lawyers with a wide range of expertise in all aspects of property law, from purchasing residential or commercial property to dealing with property disputes.  If you require any advice or assistance please call our Dispute Resolution team on 0113 207 000.