Duty of disclosure when selling a property

The case of SPS Groundworks and Building Ltd v Mahil [2022] addressed the requirements of a seller to comply with the duty of disclosure.

Facts

In 2019, a plot of land owned by SPS Groundworks and Building Ltd (SPS) was sold at auction to Ms Mahil. The land was subject to an overage obligation which required a further payment of 50% of any increase in the value of the land attributable to obtaining planning permission. Although SPS had provided a legal pack for the auction, which included the overage obligation in the deed of covenant, there was no specific reference to the overage liability during the auction. The auction brochure did not make specific reference to the overage obligation and no oral reference was made to it by the auctioneer. The highest bidder at the auction, Ms Mahil, had both visited the land and read the auction brochure. However, she failed to read the legal pack or look at the auctioneer’s website. Ms Mahil refused to complete the purchase after having discovered the overage obligation and the issue was whether SPS had failed to disclose a defect in title which could entitle Mahil to rescind the contract.

Decision

At first instance, the judge emphasised the principle of caveat emptor, ‘buyer beware’, and came to the decision that the purchaser should have properly researched the property and read the legal pack in detail. The court’s decision placed the duty on the buyer (Ms Mahil) to have full knowledge of the defects of the property upon purchase as the overage was contained in the legal pack.

However, at appeal, the High Court judge held that a seller has a duty to disclose all latent defects in title, irrespective of whether an enquiry is made. If a seller fails to make specific reference to a defect, the buyer can assume that entries on a title register would not significantly affect value.

The appeal judge held that only including the overage obligation in the legal pack was insufficient. Thus, SPS had breached their duty of disclosure and Mahil was given the power to rescind the contract.

Points to consider/comments

The outcome of this case raises questions as to how far sellers must go to disclose defects in title. The appeal judge (Cotter J) stated that the purchaser must be provided with ‘full and frank disclosure’ which requires the defect to be ‘specifically brought to a potential purchaser’s attention’. If the seller does not sufficiently address any defects in title, then potential buyers can assume the usual sort of entries which would not significantly affect the value of the property.

The decision in this case is particular significance for property auction sales where a potential buyer may bid on a property before any due diligence has been carried out by a lawyer. As a precaution, sellers in these situations should make express, specific reference to any significant defects in the auction brochure or by the auctioneer as opposed to using generic conditions or disclaimers.