Q&A: Notices to complete – caveat emptor?

Myriam Stacey KC and Rachel Morrish answer a question about the content of legal packs for properties to be sold at auction.

Question

I have just successfully bid on land at auction. It was described in the catalogue as having “excellent scope for development, subject to required planning permissions” and I was hoping to build a home on it. Although the sale was subject to the terms and conditions, including information in the auction pack, it was only available to download (which I could not do) so I did not read the documents before making my bid. Having done so, I now see the land is subject to an overage clause requiring the owner to pay 50% of any increase in value attributable to any planning permission. I have also been told by planning officers that the land is registered as localgreen space which means planning permission will be very difficult to obtain. The vendor has served me with a notice to complete. Can I get out of the sale?

Answer

Yes, on the ground that the overage clause should have been referred to as a defect in the title. The fact the land was described as having “excellent scope for development” would not have been sufficient to avoid completion though, unless you relied on the statement when you bid for the land at the auction.

Explanation

In SPS Groundworks & Building Ltd v Mahil [2022] EWHC 371; [2022] PLSCS 39, the High Court found that a buyer at auction wasnot obliged to complete, despite failing to read any of the documents in the auction pack, because neither the pack nor the auctioneer referred to the overage clause which is a defect in title.

Unlike most transactions, the contract for the sale of land by auction is entered into on the fall of the hammer and, in the absence of an actionable misrepresentation, the general rule is caveat emptor. 

However, that does not apply to material defects relating to the title. A vendor of land is under a duty to disclose such defects and, if a material defect is not disclosed in accordance with that duty, the purchaser may rescind the contract and refuse to complete it. The overage clause is clearly a defect in the title.

The test of whether there has been adequate disclosure is assessed by reference to whether an ordinary purchaser would understand what the difficulty is. In your case, if no express reference was made to the overage provision in the brochure or by the auctioneer, the duty can only be said to have been satisfied by the fact it was contained in the documents that you had access to, even if you failed to read them before your bid.

However, in SPS Groundworks, the High Court took a restrictive view and held, on very similar facts, that reference to the sale being subject to documents did not constitute adequate disclosure of an overage clause, despite the information being contained in the legal pack accompanying the auction particulars (which was made available both online and in the auction room) and there being a prominent notice in both the auction room and catalogue that the documents should be read.

The court held that there was a duty on the vendor to give full, frank and fair information to the purchaser, or a proper opportunity to gain information about a defect, and that this required the overage clause to be “specifically brought to a potential purchaser’sattention by description in the particulars, addendum notice or specific reference by the auctioneer”. Notifying the purchaser to read the documents did not provide the purchaser with “a fair and proper opportunity to become aware of the defect”.

Without more specific reference to any defect, a purchaser was entitled to assume that entries on a property register or in other underlying relevant documentation would be “the usual sort of entries which would not significantly affect the value of the property”.

The duty to disclose could also not be circumvented by conditions or a deeming clause in the contract of sale.

Rather, the acceptance of the terms and conditions was said to be “on the condition that the duty of disclosure had been complied with”.

The court also looked at whether the purchaser had a claim for misrepresentation in connection with the statement that the land had“excellent scope for development” when 80% of it was local green space.

A statement of opinion may be regarded as a statement of fact if it is false (ie if the person expressing it did not believe, or could not reasonably have believed, it).

In this case, it was found that no reasonable person could honestly have thought there was “excellent scope” for development.

However, Satvinder Mahil had not been induced to buy the land based on that description. She did so solely based on her viewing of it and without any reliance on what was stated in the auction catalogue. As SPS Groundworks was based on its own particular facts and there is no requirement for representations to have been the sole inducement, caution should be exercised when making claims which cannot be substantiated.

Practice points

• There is a duty on a vendor to make full, frank and fair disclosure of all defects relating to title.
• It is “best practice” to disclose any defect by setting out a description of the defect in the contract itself.
• Do not expect to be able to rely on deeming clauses in the contract.
• Check descriptions carefully.
• Instruct auctioneers to highlight defects.

This article was first posted on the Estates Gazette.

Myriam Stacey KC is a barrister at Landmark Chambers and Rachel Morrish is an associate at Charles Russell Speechlys.