The recent case of SPS Groundworks & Buildings Ltd v Mahil  EWHC 371 (QB) has provided guidance on a seller’s duty to disclose defects in title in the context of an auction sale.
What were the facts?
The case involved the sale of empty land at auction which was described in the auction pack as having “excellent scope for development”. However, the land was subject to an overage clause within a Deed of Covenant which significantly limited its development potential. The Deed of Covenant was disclosed in the title pack but was not highlighted in the auction brochure, nor by the auctioneer conducting the auction.
The buyer, who intended to develop the land, discovered the existence of the overage clause after exchange and refused to complete on the basis that the seller had misrepresented the land. The seller kept the buyer’s deposit and sold the land at a lower value to a new buyer, and brought the case to seek the difference in price from the original buyer.
What was decided?
It is a well-established rule of equity that a seller of land has a duty to disclose defects in title. The overage clause in this case constituted a defect in title and it was decided that the seller had not complied with its duty of disclosure. The court held that any defect in title should have been specifically brought to the attention of potential purchasers by description in the auction particulars, addendum notice, or specific reference by the auctioneer.
Although this case was brought in the context of an auction sale, the principles seem likely to extend to all sales of land and the decision has confirmed that the threshold for complying with a seller’s duty to disclose defects in title is high. A seller cannot rely on the principle of “buyer beware” and should give full, frank and fair information about any defect, or a fair and proper opportunity to gain such information. In the absence of specific reference to any defect, a purchaser can assume that entries on the property register or in the relevant disclosed title documentation would not significantly affect the property's value. It is therefore important for a seller to highlight to a potential purchaser anything on the title which may adversely affect the value of a property to ensure compliance with this obligation.