On 12th February 2019 a plot of land in Stoughton, Leicestershire was sold at auction. In the auction catalogue, the land was described as having an ‘excellent scope for development’ and as being a ‘superb investment opportunity’. The hammer fell on Ms Mahil’s bid of £130,000. She signed a memorandum of sale and paid the 10% deposit with an agreed completion date the following month.

A short while later, Ms Mahil refused to complete the purchase having rescinded the contract. The seller accepted her refusal as a repudiatory breach of contract. The land was later sold at a second auction and the seller brought proceedings in respect of the shortfall between the price agreed and that subsequently obtained. Ms Mahil alleged that she was induced into the contract by misrepresentation, and that there was a failure to disclose a defect in the title to the land.

A defect in title

As the Ms Mahil was leaving the auction, she was approached by a representative of Stoughton Parish Council who presented her with a copy of a letter stating that it would not be possible to build on the land. Far from being ripe for development, the land was registered with Harborough District Council as local green space and protected from development. The day after, Ms Mahil’s sons downloaded the legal pack and discovered an overage clause. The clause provided for payment to the Co-operative Limited of 50% of any increase in land’s value attributable to obtaining planning permission.

At first instance

Although the auctioneer made no express reference to the overage clause, the legal pack did provide pertinent information: it contained the deed of covenant along with the draft contract containing the requirement for the purchaser to enter into the covenant. The legal pack was readily available on the auction website and catalogues were available at the registration desk on the day of the auction. Signs were prominently displayed encouraging people to read the legal packs. The auctioneer also mentioned the need to read the legal packs before bidding. The Claimant had not read the legal pack and had bid blindly. At first instance, it was held that the starting point was caveat emptor. As regards the planning opportunities, the judge found that a reasonable man would consider there was ‘still opportunity for the land to be developed.’ Six grounds of appeal were granted, the first two are discussed below.

On appeal

Caveat emptor

The Appellant argued that equity requires the vendor to disclose all known defects, and the disclosure must be put in the purchaser’s mind. Furthermore, the vendor cannot rely on contractual terms which deem the buyer to have had knowledge of the defect. The appeal judge turned to Farqui v English Real Estate [1978] WLR 963 in which it was stated that: ‘it has long time been the view of equity that if there is a defect in the title and the vendor knows that there is a defect — and in the present case there can be no question but that the vendor knew there was a defect — then it is the duty of the vendor to disclose the same fully and frankly in the particulars or in the conditions, or at any rate in some place where the purchaser’s attention will be drawn to it..’ The Appellant also relied on a passage in Chitty (33rd edn) which set out that a contract for the sale of land are not uberrimae fidei in the sense that the vendor has to make to the purchaser a full disclosure of all material facts. It was held that the judge at first instance failed to properly apply the equitable principle of disclosure and wrongly took into account the maxim of caveat emptor which does not apply to defects in title. It was held that the references in the brochure, and by the auctioneer, to the need to read the legal pack were not enough to comply with the duty of disclosure.

Misrepresentations

As to the land’s ‘excellent scope for development’ and it being ‘a superb investment opportunity, it was held that the learned judge erred in finding that a reasonable person would have reached this conclusion given that four-fifths of it could not be built on. It was held the judge at first instance failed to grapple with the difference between what the Respondent believed to be true and the opinion stated. Whilst he was entitled to find that the Respondent held the view that he did, no reasonable person could have honestly equated that view to ‘excellent scope’ even pointing to the need for planning permission.

Comment

The case raises the important issue of a vendor’s duty of disclosure and the point at which compliance with that duty is met. Full and frank disclosure, in this case, meant that the overage clause should have been specifically brought to the buyer’s attention. It was not enough to refer to the need to read the legal pack before bidding; the Appellant was entitled to assume the duty of disclosure had been complied with and that as a result there would be no unusual defects revealed in the legal pack. The incautious approach to bidding blindly at an auction, having failed to have made proper enquiries as to the land and incumbrances will not relieve the seller of its duty of full and frank disclosure. As Cotter J put it: ‘the vendor is bound to give the purchaser full, frank and fair information, or a fair and proper opportunity to gain such information, about any defect.’

Let the seller beware!

Adam Jones