Seller Beware: The duties required when selling a property

A recent case acts a reminder that sellers cannot simply transfer risk and responsibility by relying on the principle of caveat emptor and need to think carefully about disclosure of title defects in the course of disposals.

The words “buyer beware” are glibly used in the context of property sales but do not actually reflect the true legal position. In fact, it is implied into a contract for the sale of land that the seller is both selling free from incumbrances, save as disclosed, and that the seller will divulge all such matters as are hidden (i.e. concealed/not obvious). Whilst sellers invariably seek to dilute these duties by including contract clauses intended to pass risk to the buyer, it has long been established that such provisions do not allow a seller to foist off onto a buyer matters of which it was aware but did not disclose. The courts have decided that a seller’s duty requires a buyer to be provided with “full, frank and fair information, or a fair and proper opportunity to gain such information, about any defect”.

The recent (2022) judgement in SPS Groundworks & Building Ltd v Mahil has raised questions as to what actually constitutes proper disclosure by the seller. In this case, the buyer had contracted to acquire a property at auction and the sales pack (which bidders were signposted to and advised to read on the auction website, by a sign in the auction room and by the auctioneer) included information from which it was evident that there was an overage liability attached to the property. The liability was also clear from the title to the property and the sale was made subject to all matters contained or referred to in the documents of title. The buyer was clearly aware of the auction pack (and had property development experience, and so knew the ropes and pitfalls) but, despite that, viewed the property but did not review the documentation.

The day after the auction, having secured the property, the buyer became aware of the overage liability and successfully argued that the overage liability was a title defect which should have been more specifically disclosed by the seller. It was decided that, in itself, advising prospective buyers to read the auction pack was not sufficient. Apparently the buyer’s lack of prudence did not outweigh the seller’s duty of disclosure.

Whilst it could be argued that the SPS decision is particular to auction sales (which generally afford much less opportunity for buyers to carry out pre-contract due diligence), it does serve as a reminder that sellers cannot “bury” title defects in documentation and transfer the onus on to buyers to dig for them. The suggestion is that sellers need to “actively trumpet the blemishes and limitations affecting a title”.

It was accepted in the SPS case that the overage liability was a defect but it is not clear whether a seller is duty bound to draw attention to all “defects” (including features such as unremarkable restrictive covenants and easements) or just any non-usual ones (such as the overage liability in the SPS case). However, legal thinking suggests that it is defects which would affect value and/or a buyer’s decision to purchase which should be flagged and certainly sellers do need to carefully consider drawing attention to any matters of that ilk. Given the inherent uncertainty as what may impact value (or not), sellers will need to err on the side of caution in the case of any grey areas.

The SPS case provides a salutary reminder of the duties of sellers as well as an escape tunnel for buyers albeit that we will have to wait and see whether others (particularly non auction purchasers) are successful in using the same route to get out of jail free. For the time being, seller beware, be clear and be explicit.