23rd May 2022

Defects on title for a property being sold at auction

It is a long-established principle of property law that a seller of a property or land must disclose to a buyer, prior to contracting, all latent defects in title other than those of which the buyer is already aware.

The extent of a seller’s duty to disclose defects in title was a key issue of importance in a recent High Court case; SPS Groundwords v Mahil [2022] EWHC 371 (QB), involving the sale of a land at an auction which was subject to an overage payment.

Firstly, what are latent defects in title?

A latent defect could be any liability, charge, restrictions, covenants or easement which is not discoverable on reasonable inspection of the property. Common latent defects include rights of way, rights of drainage, local land charges, restrictive covenants, tenancies and overage liabilities.

All material latent defects which could reduce the value of a property or land should be disclosed by the seller to a buyer prior to contracting.

Consequences for failing to disclose defects in title

It is important for a seller to comply with their duty to disclose to disclose all defects in title. Failure to do so would allow a Buyer to bring a claim for misrepresentation, which if successful would allow a buyer to rescind a contract for sale of a property and/or to claim damages.

The case of SPS Groundworks v Mahil [2022] EWHC 371 QB

In February 2019, a plot of land was sold at an auction. The land was subject to an overage liability contained in a deed of covenant dated 21 December 2017. This defect in title was secured by a restriction on the title which prevented the registration of any sale unless a buyer promised to pay the overage.

The auction catalogue however made no specific reference to the overage liability and was not mentioned by the auctioneer either. However, the legal pack prepared for prospective buyers did contain a copy of the register of title and a copy of the deed of covenant. This information contained in the legal pack would have allowed for any prospective buyer upon reading the legal pack to discover that the land being sold was subject to an overage liability. The auctioneers also told prospective bidders to read the legal pack in the auction brochure and made the legal pack available online.

The Buyer was aware of the legal pack but was unable to download it on the day. They went ahead with the purchase without reading the legal pack. However, the next day upon obtaining the legal pack, they discovered the land was subject to an overage liability and they refused to complete and the sale fell through.

A key issue was whether the seller had failed to disclose a defect in title which would allow the buyer to rescind the contract.

At first instance, the court held that providing the information within the legal pack was sufficient for disclosure. However, on appeal in the High Court, the court held that providing the information in a legal pack and making reference in the auction brochure to the need to read the legal pack was insufficient for the seller’s duty of disclosure.

The High Court held that a seller’s duty of disclosure means that a buyer “must be given full, frank and fair information or a fair and proper opportunity to gain such information, about any defect”.

Applying this principle to the facts of the case, the High Court held that the overage clause should have been specifically brought to the attention of prospective buyers at the auction by:

  1. A description in the sales particulars; or
  2. An addendum notice; or
  3. Specific reference by the auctioneer.

By specifically highlighting a defect in title to prospective buyers, they could be put on notice of any unusual feature of the land they were intending to bid upon.

Key practical takeaways

The ruling by the High Court highlights two key practical implications relating to a seller’s duty of disclosure:

  1. Simply providing the Buyer the means or signposting how to ascertain defects in title will not be sufficient for disclosure.
  1. Disclosure requires a seller to provide specific reference to defects in title to a buyer by bringing such defects in title to the buyer’s attention.

The practical implications of this case are not limited to auction sales. Since many titles to property contain defects, sellers and their legal advisors need to ensure appropriate steps are taken to identify defects in title and to disclose them in a full and frank manner.

Sellers at an auction should look to adopt a transparent and proactive approach by laying out all their cards on the table, and specifically bringing to the attention of prospective buyers any defects in title. This may involve detailing all defects in title in the sale particulars, an added notice to the auction listing or requesting the auctioneer to make specific reference to all defects in title when conducting the auction.

If a Seller fails to bring defects in title to the attention of prospective buyers, there is a risk of a buyer being able to rescind the contract for sale and/or claim damages for misrepresentation.

A transparent and proactive approach regarding defects in title would protect sellers from any future claims in misrepresentation.

Our expertise in dealing with property sales at auction

At Burnetts our property teams have extensive experience of facilitating sales of property at an auction. We can help to advise you on what information you would need to disclose to prospective buyers and how to do so in a proactive and transparent way for you to comply with your duty of disclosure.

If you are considering selling a property at auction and would like to discuss your sale further, please do not hesitate to get in touch with our residential, commercial or agribusiness property teams by emailing hello@burnetts.co.uk
and phoning 01228 552222.