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Tell me everything…but don’t overdo it

Introduction

A plot of land is sold at auction.  The hammer falls at £130,000.  The successful bidder fails to complete.   The vendor resells the land to another at a lower price.  Litigation ensues with claim and counterclaim.  Who wins?

The answer – in SPS Groundworks & Building Ltd v Mahil [2022] EWHC 371 (QB) – was:

  1. The vendor.  (At first instance)
  2. The purchaser.  (On appeal)

So the purchaser, Ms Mahil, won on the away goals rule.   But it is worth looking at why – so read on.

Ms Mahil’s complaints were about both:

  1. What she had not been told before the sale; and also
  2. What she had been told before the sale.

More specifically, when sued by SPS, the vendor, for the difference between the £130,000 agreed price and the sum which the land fetched on the second sale, Ms Mahil’s riposte (by defence and counterclaim) was that SPS had:

  1. Failed to disclose a defect in the title to the land; and (separately)
  2. Induced her purchase by misrepresentation.

In fact, Ms Mahil ultimately won the first point but lost the second.  Her success on the first was, however, enough to see her home.

Disclosure of defects in title

Overview

It is trite law that a vendor is bound to disclose defects in title and encumbrances of which they are aware.  Further, a contract condition cannot make good a failure to disclose and enable a defaulting vendor to circumvent liability.  If a material defect is not disclosed, the purchaser may rescind the contract.

Of more interest though is exactly what is required to comply with the disclosure duty.

The story

The particular issue in SPS v Mahil concerned an overage liability, set at 50% of any uplift in value attributable to future planning permission.  This liability was secured by a restriction on the register of title which prevented the registration of any disposition unless the terms of the overage deed were complied with.

It was common ground that the overage liability constituted a defect in title.

The land was described in the auction catalogue in the usual glowing terms and with standard marketing patter (“desirable village”, “rural feel but … plenty of amenities” etc.).  As regards its potential, the catalogue stated, “There is also excellent scope for development, subject to any required planning permission, making a superb investment opportunity.”

Not surprisingly, given that the object of a catalogue is to promote and sell, the description of the land did not itself refer to the onerous overage liability.  Likewise, the auctioneer did not make any express reference to it.

However, although the brochure and auctioneer did not actively broadcast the news about the overage, the overall auction materials certainly did not hide and say nothing about it.  Indeed, the legal pack prepared for bidders at the auction (which covered 35 lots) contained not only an official copy of the register of title but also a copy of the overage instrument itself, along with a TP1 form which included a reference to the relevant provision and housed a requirement for the purchaser to enter into a covenant to be bound by the overage.

Had anyone read the legal pack, they would plainly have been alerted to the overage.

Moreover, the legal pack itself was well publicised:

  1.  It was on the auction website alongside each property’s description.
  2. It was (at least in theory) available in hard copy at the auction itself (although Ms Mahil was unable to obtain one).
  3. A sign at the auction encouraged bidders to read the legal pack.
  4. Before bidding commenced the auctioneer told those assembled in the room that it was their responsibility to have read the legal pack.

Despite this, Ms Mahil bid blind.  It was not as if Ms Mahil was unaware of the legal pack.  She knew full well of its existence but she and her husband had been unable to download it from the internet or obtain a hard copy.  So, even though she knew that a legal pack is important and that its purpose is to provide information about the property and to reveal hidden problems, Ms Mahil nevertheless proceeded to buy the land without sight of it.  It was only the following day that she and her husband downloaded the legal pack and discovered about the overage.

The decision

As an experienced property developer who had previously attended an auction, it is tempting to conclude that Ms Mahil was the author of her own misfortune.  After all, she knew where to look but consciously went ahead without reading the legal pack upfront.  Surely SPS had taken sufficient steps to disclose the existence of the overage in the circumstances?

This is what the trial judge thought.  Buyer beware, he said.  In his view, Ms Mahil should have studied the legal pack.  The overage clause was in it.  It was there to be seen.  She could and should have looked at the title and satisfied herself.

But the appeal judge (Cotter J) disagreed.  He sided with Ms Mahil.  Drawing on various authorities – in particular, Farqui v English Real Estate [1978] WLR 963 – he held that a vendor’s duty means that the purchaser must be given full, frank and fair information, or a fair and proper opportunity to gain such information, about any defect.  Further, in the absence of specific reference to a defect, a purchaser may assume that entries on a register of title or elsewhere would be “the usual sort of entries which would not significantly affect the value of the property.”

Applying those principles to the facts of the case, Cotter J decided 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 disclosure duty. They did not flag any unusual feature of the title.

What was required was for the overage clause to be specifically brought to a bidder’s attention by description in the sales particulars, an addendum notice (as had occurred at the second auction), or by a specific reference made by the auctioneer.  Since that had not happened, SPS had failed to comply its duty, and Ms Mahil triumphed.

Further, although the sale terms and conditions stipulated that the land was sold subject to the matters contained or referred to in the documentation and also that the buyer accepted the title of the seller, they could not assist SPS because the law refuses to allow provisions of that nature to sidestep the principle of due disclosure.

Learning and action points

One may think that Ms Mahil was very lucky.  She was a sophisticated purchaser who bid for land knowing that there was a legal pack which she had not read.  Fortunately for her, the court held that the vendor’s disclosure duty meant that she was entitled to assume that, unless positively advised otherwise, no “unusual” defects would be revealed in the legal pack.

What we can draw from the decision is that:

  1. The caveat emptor rule does not apply to defects in title; the vendor’s disclosure duty prevails.
  2. Clever drafting cannot circumvent the disclosure duty.
  3. The fact that a purchaser could have made enquiries and ascertained the position but imprudently did not does not absolve the vendor of the disclosure duty.
  4. It is insufficient for a vendor merely not to bury news of defects in title.
  5. Indeed, it is not enough for a vendor to present a purchaser with a well-signposted means of ascertaining the full picture regarding the title; simply giving the purchaser such a chance (to see to what the property is subject) falls short of what is required.
  6. Rather, the disclosure duty is an exacting one and seemingly requires the vendor actively to trumpet the blemishes and limitations affecting the title.
  7. This will require disclosure by “explicit and plain conditions” (Re Marsh and Earl Granville (1883) 24 ChD 11) or “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” (Farqui v English Real Estate), so that an ordinary purchaser would understand what the particular difficulty is.
  8. Anything short of an express, specific reference to the defect in title will likely not suffice.
  9. In practice, it may well be necessary (certainly in an auction context) to refer distinctly to the property being subject to the particular right or liability stemming from an identified deed – although it may be acceptable to refer the reader to the underlying documentation for the detailed terms: Farqui v English Real Estate.
  10. Since very few titles are absolutely clean, it appears that a vendor will need positively to highlight all easements, covenants, third party rights and other incumbrances and limitations on the title, if they are to be sure to comply with the disclosure duty.
  11. Given the inherent uncertainty about what might constitute an unremarkable entry on a title of a “usual sort”, and bearing in mind the judicial description of such an entry as one which does “not in any way affect the value of the property adversely”, a vendor would be ill-advised to keep its head down in relation to any grey areas.

All in all, SPS v Mahil provides a salutary reminder for vendors and a welcome (though some might say undeserved and overly protective) safety net for purchasers.

Misrepresentation

At first blush, the description of the land as having “excellent scope for development” and being a “superb investment opportunity” appears unremarkable.  It smacks of typical sales spiel.  Everyone knows you can’t set store by marketing puff.

What is more, the statements are (as was accepted in the proceedings) mere opinions.  Further, both were distinctly qualified by the words “subject to planning permission”.

Also, although a statement of opinion may be actionable as a misrepresentation (like a statement of fact) if it is false, it is usually difficult to show that an opinion is false, for this requires proving either that the person did not actually hold the opinion (subjectively) or that they could not, as a reasonable person, have honestly held the opinion (an objective assessment).

The above made the chances of a successful misrepresentation claim difficult.

However, in this case there was more to matters than initially met the eye.  The land was, as SPS knew, registered as a local green space, with the result that 80% of it was thereby protected from development.  This, of course, was in addition to the overage liability.

Nonetheless the trial judge found that SPS did believe that, notwithstanding such factors, there was nonetheless scope for development of the land, albeit that it would not be easy.  Further, the trial judge found that in the circumstances a reasonable person would have held the same view and considered there was still opportunity for the land to be developed.  Cotter J held that the trial judge was entitled to make these findings of fact.

But this alone did not enable SPS to escape to safety.  As Cotter J explained, the findings by the trial judge did not address the material difference between what Mr Smith believed and what had been represented in the brochure.  Moreover, to his mind, it was impossible to reconcile the belief of Mr Smith with the opinions that had been put forward.  The former was that there some “some” scope for development, whereas the latter was that there was an “excellent” prospect of development, yielding a “superb” investment opportunity.

It was contended for SPS that any difference in presentation was essentially one of degree and that the offending adjectives did not mean that the overall opinions expressed (themselves qualified by the reference to the need for planning permission) were not substantially correct.  Cotter J was having none of that.  He concluded that no reasonable person could have honestly equated the view actually held (some scope for development) with the advertised opinion (excellent scope).  Consequently, the stated opinion was false and in principle an actionable misrepresentation.

In the end though, SPS managed to see off the misrepresentation counterclaim.  This is because it was held that Ms Mahil was not influenced by the misrepresentation.  So keen had she been on the land that she had simply decided to buy it based on her viewing alone.  In the process she had ignored the representations (just as she had ignored the legal pack).  Therefore, somewhat unusually in a misrepresentation context, her claim failed for want of reliance.

Comments

The decision in relation to the misrepresentation claim is case specific but serves as a useful reminder of the potentially fine line between legitimate advertising spin on the one hand and improper exaggeration and misrepresentation on the other, and is a warning of the need to tread carefully to avoid crossing that line.

Hyperbole is one thing and (in the realms of marketing) to be expected to an extent, but when it reaches the point of overegging a matter beyond that which is manifestly sustainable it takes on an entirely different, and legal, significance.

Conclusion

A vendor must be very careful: saying too little can result in trouble, yet overstating something can also have a similar consequence.

 

MARTIN DRAY FCIArb

Falcon Chambers

1 March 2021



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