Buyer beware but seller disclose

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Buyer beware has always been the default legal position when it comes property transactions, in that the burden lies with the purchaser to check what they are getting into before going ahead and sealing the deal.

However, whilst caveat emptor still applies, a recent case which reached the High Court has shown that the doctrine only goes so far and that the seller must be open about information about defects in title which may affect the buyer’s decision to proceed.

In SPS Groundworks and Building Ltd v Mahil [2022] EWHC 371 (QB), Ms Mahil had purchased a piece of land at auction which was subject to overage provisions, effectively constituting a defect in the title to the land.

But although the overage was mentioned in legal documents and registers pertaining to the property, it was not specifically referred to in the catalogue description of the auction lot or at any stage during the auction itself.

Ms Mahil had not reviewed the legal pack before the auction and only discovered the existence of the overage clause after lodging a successful bid for the property which was then withdrawn. The seller forfeited the deposit that had been paid and made reference to the overage clause at a later auction where the lot was sold at a significantly reduced price.

In order to recoup the shortfall between Ms Mahil’s original bid and the eventual sale price, the seller brought an action against Ms Mahil which was successful in the first instance as the Court held that she should have consulted the legal pack before bidding on the property.

Ms Mahil appealed the decision, arguing that the inclusion of the overage clause in the legal pack did not meet the seller’s duty of disclosure. The High Court agreed, stating that the purchaser must be given full, frank and fair information, or a fair and proper opportunity to gain such information, about any defect. It held that simply encouraging potential bidders in the auction catalogue to read the relevant legal pack was insufficient to meet the duty of disclosure.

The outcome of this case serves as a reminder of the importance of conducting due diligence when completing a property transaction, and that this need applies to both parties involved.