December 8, 2022
Commercial Property

A sale of a plot of land by auction has raised interesting, and some may think surprising, points of law around the duty of disclosure in property sales, the conditions of a contract that need to be brought to the attention of a party, and misrepresentation. The case can be found here.  

Facts

Background

In 2017, the claimant (SPS) purchased a plot of land in Stoughton, Leicestershire. The land was subject to an overage liability – where a vendor of a property can dispose of undeveloped land and gain a percentage of any increase in value if planning permission is obtained by a subsequent purchaser. 

SPS made further enquiries. It was told by the local planning officer that most of the land was classified as an “important open space.” Accordingly it would struggle to obtain planning permission without getting the local Parish Council onside. The Parish Council did not agree that the land should be built on. It cited the open space designation and a recent planning decision where it was determined that further development of Stoughton would be unsustainable.

SPS put the land up for auction in 2019. The description of the land in the catalogue and various newspaper advertisements stated that the property had: “…excellent scope for development, subject to any required planning permissions, making a superb investment opportunity.” 

Seeing this, the Parish Council notified the auctioneers of the potential restrictions on development as outlined above. The wording in the catalogue was amended to state that “[a]ll planning enquiries should be made to Harborough District Council.”

On the auctioneer’s website, there was a downloadable ‘legal pack’ of relevant documentation. The legal pack made clear that there was an overage liability over the property. 

The defendant (Mahil) was an experienced property developer. She saw the advertisement for the land in advance of the auction. With her husband, she went to visit the land, and went on the auctioneer’s website. Her evidence stated that she could not download the legal pack as the download link would not work. 

The auction

Mahil attended the auction. She collected a hard copy catalogue, but did not look at the Terms of Conditions referred to within. A clause in the Terms and Conditions stated that the sale is subject to the matters contained in the documentation (i.e the legal pack). Mahil purchased the property for £130,000. 

Mahil did not complete the purchase. As she was leaving the auction, she was approached by members of the Parish Council who gave her a copy of their letter to the auctioneers, telling Mahil that building on the land was impossible. Mahil’s sons were able, the day after, to download the legal pack and reveal the existence of the overage to Mahil.  

The auctioneers put the land back up for auction. The catalogue was amended to make specific reference to the overage. The auctioneer also read out the notice from the Parish Council. The land was sold for £75,000. 

The claim

SPS brought a claim against Mahil for breach of contract, seeking the price difference between the first and second sales. Mahil denied the breach, arguing that she was induced into entering the contract for sale by misrepresentation, and that there was a failure to disclose the overage.

Mahil brought a counterclaim for the deposit and the buyer’s premium amounting to £14,047.  

The claim at first instance

It is worth recalling the basic law that applies here:

  1. a vendor of land is required to disclose to the buyer the defects in title that they are aware of; and
  2. a party to a contract cannot be induced (persuaded) to enter it based on false statements of fact.

If the vendor does not meet its disclosure requirements, or makes a misrepresentation, the other party will be entitled to validly rescind (exit) the contract. 

Opinions (subjective assessments of quality) are not facts, unless they can be shown to be false. To demonstrate falsity, it must be shown that the person that expressed the opinion did not hold it, or it was such an unreasonable opinion that it could not have been honestly held. 

Disclosure

The issue of disclosure pertains only to the overage liability, as it was a defect in title necessary to disclose. That is distinct from the claims around the quality of the land described in the sales literature for the auction and advertisement, where misrepresentation. 

Judge Murdoch, at first instance, held that the reference to the Terms and Conditions in the sales catalogue were clear enough to put a prospective purchaser on notice of the overage.

He noted Lord Denning’s legal maxim set out in Olley v Malborough Court [1948] CA 532, familiar to every law student, that conditions of a contract did not need a red hand pointing to them. Such conditions need only be brought fairly to the other person’s attention.  

In short, Mahil was aware of the existence of the legal pack. She should have studied it. That she failed to do so cannot be the fault of the vendor. 

Misrepresentation

Judge Murdoch’s decision on misrepresentation focused on the facts of the case, and in particular the evidence of SPS’s director, a Mr Smith. 

Mr Smith stated that although he was aware of the limitations on the potential development of the land (the open space designation and the objection of the Parish Council), he still genuinely felt that there was “still opportunity for this land to be developed.” Only four fifths of the land was a designated open space, and he felt that he could eventually obtain planning permission even if the Parish Council was not on board. 

This was, in the view of the judge, an opinion supported by the contemporary fact that SPS did not immediately sell the land but held on to it for two years. 

Therefore, the opinion expressed in the advertisement was a reasonable one to hold. As such there was no misrepresentation. The claim was therefore successful and the counterclaim rejected. 

The appeal

Mahil disagreed with the decision. She obtained permission to appeal on both the claim and counterclaim.

Disclosure 

Cotter J conducted a review of the authorities. Of various cases, of significance was Farqui v English Real Estate [1978] WLR 963 where Walton J held that “full and frank” disclosure of defects in title need to be disclosed. Importantly, a reference to generalised conditions of sale at auction provides no indication that there is anything unusual going on. A purchaser would just expect that the contents of the land register were of the usual sort and not a “pig in a poke”. 

Mahil aligned Farqui with the present circumstances, highlighting that the reference to the Terms and Conditions in the catalogue were common to all the other properties up for auction that day. This was accepted by Cotter J. 

Cotter J also highlighted the rule in Rignall Developments Limited v Halil [1988] 1 Ch whereby vendors cannot rely on a purchaser’s ignorance to escape their obligations to disclose defects in title. 

It can be seen that these cases, which were not highlighted at first instance, go squarely in Mahil’s favour.  Cotter J agreed and allowed the appeal on this ground alone. He highlighted in particular the need to bring unusual defects to the specific attention of a potential purchaser within the description of sale. SPS did in fact do this when the land was re-auctioned, demonstrating that there clearly was a need for it. 

Misrepresentation

Unusually, Cotter J focused on the specific evidence given by Mr Smith at first instance. Appellate courts are discouraged at common law from re-reviewing evidence. 

Cotter J took issue specifically with Judge Murdoch’s finding that Mr Smith “believed at some point the land would be viable as a building plot” even if was not going to be “easy.” The phrase “still scope for development” was also held to be problematic. 

The reason for this, in Cotter J’s opinion, is because Mr Smith’s statements in Court do not actually reflect an opinion that the land had “excellent” scope for development – only “some” – and therefore it could not be reasonable described as offering a “superb” investment. 

Because there was in fact no evidence that went to Mr Smith/SPS holding the opinion set out in the advertisement, it could not be considered by a Court to be an opinion reasonably held. Further, on an objective analysis the heavy burdens weighing on the development of the land, not properly disclosed to the buyer, could not reasonably justify a description of “excellent” or “superb.”

Comment

This case is a prime example of what not to do as a vendor of land (at auction or otherwise): you must make sure you are clearly, within the sales documentation, indicating the liabilities over an asset and make sure your ‘sales fluff’ reflects the true position. There are limits around the use of adjectives like “excellent” and “superb.” While the standards for a land purchase are higher, all those dealing with an asset can take note of these lessons. “Buyer beware” does not mean “buyer misled.”  

The Court is clearly prepared to intervene to protect buyers who, it can be said, did not do their best to protect themselves. One might think that this appeal was wrongly decided. Mahil did essentially nothing to satisfy herself of the legal realities of the purchase, despite being clearly aware that relevant legal documentation existed – which she tried to access herself! But, even with commercial experience, not everyone has an army of lawyers behind them. What the High Court was doing here was ensuring that a deal should be fair; SPS did not have to do much more at the second auction to properly highlight the planning issues and the overage. 

If you think you have purchased an asset that was not as described, or equally have questions about selling an asset, get in touch with the property and contract law experts at EM Law here.