The buyer beware principle that applies to land transactions absolves a seller of land and property from a wide range of defects and disrepair. It is, therefore, incumbent upon purchasers to satisfy themselves that the land or property they are purchasing is in the condition they believe it to be in.
Misrepresentation is one of the few legal remedies available to a purchaser against their seller. In order for this to succeed, there are three ingredients: (i) a seller needs to have made a false representation, (ii) the representation needs to have induced the purchaser into the contract to buy the property and (iii) the purchaser must have suffered loss.
Case history and facts
Auction sales can be particularly risky for purchasers, as there is seldom the opportunity to inspect a property fully prior to purchase or to make enquiries in the usual way. The auctioneers will provide a legal pack, however, information is usually caveated heavily. In the case of SPS Groundworks & Building Limited v Ms Satvinder Kaur Mahil the court provided helpful guidance regarding the law of misrepresentation, the extent of the buyer beware principle and obligations upon the seller of land with respect to defects in title. In that case, the purchaser, Ms Mahil, was the highest bidder in a property auction and when the hammer fell the purchase price was the sum of £130,000 plus VAT.
The case for misrepresentation centred around a small paragraph which described the land being sold as having “excellent scope for development” and being “a superb investment opportunity”. However:
- The land being sold was registered as local green space;
- An overage provision was registered against the land, which provided that 50% of the uplift value as a consequence of any planning permission successfully obtained would be paid to a predecessor in title; and
- The local authority plan saw further development within the particular village that the land was situated in as being unsustainable.
The seller was aware of these things following a letter being pinned to the auction board of the land by the clerk of the local parish council highlighting these obstacles. The letter further went on to describe the statement that the land had excellent scope for development as “somewhat far from the truth”.
The purchaser refused to complete after representatives from the local parish council provided her with information regarding the fairly insurmountable difficulties in developing the land. The land was resold with specific reference to the overage provisions and achieved a sale price of £75,000 plus VAT.
The seller brought proceedings against the purchaser to recover the shortfall between the sum she had bid and the sum the land eventually sold for once the overage provisions were disclosed.
The High Court considered six grounds of appeal, however, the three relevant ones are:
- The extent of a seller’s duty to disclose a defect;
- Whether a reasonable person would believe the representations made by the seller were true; and
- The extent the purchaser relied upon the representation made by the seller.
Duty of a seller to disclose title defects
There was no dispute that an overage clause constituted a defect in title, nor was it disputed that no reference was made to the overage provisions in either the property description, the brochure or by the auctioneer. However, the legal pack did provide information about the overage clause and contained the deed of covenant, although the purchaser had not downloaded the legal pack or seen it prior to the auction. The seller argued that this was sufficient and the purchaser had therefore had an opportunity to discover the defect.
The court took into account the view of Mr Justice Fry in the case of Marsh and Earl Granville:
“The principles applicable to the decision of the question appear to me to be not in dispute […] a vendor who desires to limit the rights of a purchaser must do so by explicit and plain conditions, and he must tell the truth, and all the truth, which is relevant to the matter in hand”.
It also took into account the decision in Nottingham Patent Brick & Tile Co v Butler:
“It would be nothing short of a direct encouragement to fraud if a vendor were at liberty by a condition of this kind to sell to a purchaser as an absolute and unburdened freehold a property which he knew to be subject to liabilities which would materially reduce its market value … In honesty and in law alike he was bound to give the purchaser full and fair information what it was that he had for sale”.
The court concluded that the buyer beware position does not apply to defects in title and that a seller of land is obliged to disclose every material defect in their title. References by the auctioneer and brochure to the legal pack would not suffice. In particular, the overage provisions needed to be specifically brought to the attention of a potential purchaser. This part of the appeal succeeded.
In order for misrepresentation to succeed there needs to be a false representation and the High Court considered the representations made by the director of the seller company, that the land had “excellent scope for development” and was “a superb investment opportunity”. In the first instance, the trial judge concluded that the director of the seller was of the opinion that there was a good possibility of planning permission being obtained and that building on the land would be possible, albeit not easy. The trial judge believed that a reasonable person would consider that there was an opportunity to develop and that it was therefore reasonable for the director of the seller to hold these views.
The High Court, however, ruled that the trial judge had failed to deal with the distinction between what the director for the seller believed and the representations stated. In this instance, the additions of the words “excellent” and “superb” were not something a reasonable person could have concluded when considering the overage provisions and position of the local authority. This part of the appeal succeeded.
In addition, it is not sufficient that a representation is false, it must be relied upon by the purchaser in order to induce them into entering into a contract. The High Court considered whether the purchaser had been induced by the false representation of the seller. The court importantly highlighted that there is no requirement that the representations made are to be the sole inducement for entering into the contract.
One of the arguments raised was that even though the purchaser had visited the land being sold, she would not have been able to see from a visual inspection that four-fifths of the land could not be built upon as it was designated as local green space. However, the High Court concluded that while the initial finding was troubling, it was not unsupported by fact and that having taken the decision to buy the land based upon her viewing, the purchaser did not act in the manner of a reasonable purchaser and ignored the representations, as opposed to being induced by them.
This decision provides further helpful guidance as to where the buyer beware principle exists in property transactions and where the duty of disclosure is upon the seller, especially in the context of auctions.
Misrepresentation depends upon the facts of each transaction and if there had been slightly different conduct by the parties to this dispute then this could have resulted in a different outcome. Had the seller merely asserted “scope for development” or “investment opportunity” then it seems likely that an appeal would have failed. Had the purchaser read the legal pack and taken time and steps to carefully consider her purchase then her appeal for inducement could have been successful.
This article first appeared on the Practical Law Dispute Resolution Blog on 21 November 2022.