The ‘buyer beware’ principle does not absolve seller of its duty to disclose

concept of selling a house. a hand is holding a model house above green meadow.

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A court ruling has highlighted that a property seller still has a duty of disclosure which is an exception to the well-established and long standing ‘buyer beware’ or ‘caveat emptor’ principle. In this case, a plot of land was successfully sold at auction but due to the landowner’s failure to disclose a defect in title, the buyer withdrew from the sale. The landowner consequently sued the buyer for damages, but the claim was unsuccessful.

Ms Mahil purchased a plot of land at auction, intending to build a home on it. The brochure described the plot as having ‘excellent scope for development’. However after lodging a successful bid for the land, she found that a) the vast majority of the land was designated as green space and therefore could not be built on and b) the land was subject to a clause in a deed of covenant which stated that 50% of any increase in value of the land as a result of planning permission being granted had to be paid to Co-operative Ltd.

Ms Mahil declined to continue with the transaction after discovering the defects and withdrew her bid. SPS Groundworks and Building was the seller and they consequently relisted the land and sold it at a reduced price. SPS then pursued a claim against Ms Mahil alleging that she was liable to pay for the shortfall between the original bid and the final sale price.

The auction brochure specified that buyers need to read the legal pack but did not contain any explicit details of the title defects and the auctioneer did not make any reference to these during the auction. Ms Mahil did not refer to or read the relevant documentation.

SPS’ claim was successful in the court of first instance, as the judge concluded that the ‘caveat emptor’ principle applied in this scenario and Ms Mahil did not carry out proper due diligence. Had she done so and read the legal pack as advised in the brochure before placing her bid, she would have known about the defects and all relevant information pertaining to the piece of land.

Ms Mahil appealed the decision and the High Court granted her appeal. The court held that the seller has an equitable duty of disclosure and this duty was not met as the particulars of sale should have specifically referenced the defects. It was found to be insufficient to simply ask potential bidders to read further documentation.

Clarisse Robbins, Associate Director – Claims & Technical of Brunel Professions said “This ruling is an important reminder for any professional involved in property transactions that they are required to disclose full, frank and fair information about any title defects. Whilst the ‘buyer beware’ principle still stands, this does not provide sufficient protection as such duty of disclosure remains. A client could seek to bring a negligence claim against their agents or advisers if relevant information is not disclosed which ultimately results in the failure of a transaction.”

Reports about the case have been published by IBB Law, Wilson Law and Buckles Solicitors.

Professionalindemnity.com is owned by Brunel Professions, which is a leading professional indemnity insurance broker in the UK. Click here to get a quote or call 0345 450 1074 to speak to a broker.

 

 

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