May

Don’t fall foul of the disclosure laws when selling or letting a property

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Traditionally, contracts for buying and selling property always relied on the old English common law principle of ‘caveat emptor’, or let the ‘buyer beware’. In other words, the seller did not need to reveal material facts (defects) about the property for sale so long as the buyer, with reasonable due diligence, could find out about them itself.

And of course, sellers would be reluctant to volunteer any information about a property for sale that could potentially make the property less valuable or difficult to sell.

All of this changed with the introduction of consumer protection legislation. In particular with the Consumer Protection Against Unfair Trading Regulations 2008.

Descriptions must be accurate

These Regulations (known as the CPRs) are the Regulations that control descriptions used by estate agents and letting agents. They create criminal offences for agents and landlords that breach them. The Regulations prohibit ‘misleading actions’ and ‘misleading omissions’ that cause, or are likely to cause, the average consumer to take a transactional decision they would not have taken otherwise.

Great care needs to be taken when using general descriptions involving the location, environment, planning, photographs, measurements, parking, pricing. General disclaimers in the small print informing buyers and renters not to rely on the details provided will not be enough to prevent offences. This also applies to information provided on websites and in agent’s window displays.

Selling residential property

All this places the onus on the seller of a private residential property to divulge anything and everything that may have an impact on the buyer’s decision to proceed with a purchase. If the seller omits anything of importance (that they are aware of) they could face prosecution – whether the buyer asked about the issue or not – and also a claim for damages if a sale goes through with less than full information.

The Law Society’s Property Information Form (TA6) asks sellers to divulge all details about the property that they are aware of under various categories:

Occupiers living at the property
General disputes or complaints made by or about the seller, anti social behaviour, nuisance, crime etc
Property boundaries and any boundary disputes
Planning permission on the property, pending, granted or denied
Flooding issues, current or historic
Structural defects
Any changes made to the property such as extensions, alterations with planning permissions and completion certificates
Areas shared with neighbours, rights of way, licenses, easements, formal and informal agreements or disputes over these
Guarantees and warranties affecting the property
Any environmental issues or future plans affecting the area, roads, large scale building etc

It is most important to give honest answers to these questions, otherwise it could come back to bite you in a big way somewhere down the line – you are likely to get sued. It may be uncomfortable to reveal some issues and could cause you anxiety about losing a sale, but a new owner could come back with legal action, even years after the sale.

It’s also best to be open and transparent when answering these questions. Being economical with the truth will likely just arouse suspicion. The buyer’s solicitor is bound to ask for further clarification in the ‘additional enquiries’ phase of the conveyancing process if you do this.

Good evidence is the key when issues are present. If the problem was solved, show the paperwork to confirm this. A structural issue has been dealt with, show reports and invoices. If the house flooded, show what has been done to prevent recurrence. If you resolved disputes with neighbours, show written correspondence to that effect.

Commercial Contracts

Commercial propriety is not exempt from these matters. A recent court case shows just how far reaching the disclosure issue goes. Although in the case of commercial contract the principle of caveat emptor does apply to some extent as a commercial contract between two consenting parties, there are exceptions, one of which is the seller’s duty to disclose latent defects in title.

A commercial property seller is bound by law to disclose any defects in title and encumbrances which it may be aware of. What’s more, written contract clauses and conditions cannot avoid liability for a seller’s failure to disclose material defects – the purchaser may rescind the contract.

SPS Groundworks & Building Ltd v Mahil (2022)

In the recent SPS Groundworks case, the buyer successfully bid on a piece of land at auction that had been described in the auction catalogue as having “excellent scope for development”. The buyer intended the land for the building of a house.

It was discovered later that the land was subject to an overage clause*. Contained in a deed of covenant, it was provided that the Co-operative Limited would receive 50% of any increase in the land’s value as a result of obtaining planning permission to build.

Although a copy of the deed of covenant was included in the legal pack prepared for the auction and available for the buyer to download, the buyer did not do so. Neither did the auctioneer on the sale day refer to the deed, although in both cases it had been suggest that all potential purchasers should read the legal packs for the properties on which they were bidding.

The buyer also discovered after the sale concluded that 80% of the land could not be built on, this being registered by the council as a local green space and protected from development.

When the buyer realised the facts it refused to complete the purchase. Subsequently, the land was sold for considerably less than the original bid, and the seller went on to seek to recover the difference from the original buyer.

Buyer beware, or no?

At trial the judge took the view that having accord to the principle of ‘caveat emptor’, or ‘buyer beware’ the purchaser should have downloaded and studied the legal pack containing the full information. And had it done so it may not have raised a bid, or otherwise went ahead and purchased the property in full knowledge of the defect. Hard luck was the judgement, pay up!

However, on appeal the appeal judge took a different tack, finding that the references in the auction catalogue and the actions of the auctioneer informing bidders to read the legal pack were insufficient to comply with the duty of disclosure.

Full and frank disclosure the judge said, required the overage clause to be specifically brought to a potential purchaser’s attention not only by the description in the particulars, an example being the type of notice produced at the second auction, or by specific reference made orally by the auctioneer.

The buyer had the right to assume that in the absence of specific references to defects, a purchaser could assume that entries on the property register or in the relevant sale documentation would not significantly affect the property’s value.

It was also noted and underlined by the judge that liability for failure to disclose cannot be avoided by including a clause in the contract, deeming that the purchaser had access to the information and therefore full knowledge of the defects.

The lessons from this case:

As with consumer sales, the SPS Groundworks case highlights the importance of ensuring that title defects are disclosed when selling a property. Whilst it is usual to expect buyers to exercise full due diligence, there is still a duty to advise the buyer of any defects in title that materially affect the value of the property. The description must be accurate and transparent, and active in drawing defects to a buyer’s attention.

*Overage clause – sometimes called a “claw-back” or “uplift” clause, it’s an agreement, usually by way of a deed of covenant in the title, that the buyer of a property will pay extra, on top of the original purchase price, in the event that, for example, the buyer increases the value of the purchase in the future by obtaining planning permission.

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