229: Selling a property at auction? Let the seller beware

When selling property at auction, a seller must disclose all defects and draw the buyer’s attention to onerous conditions such as overage clauses.

In SPS Groundworks and Building Ltd v Mahil [2022] EWHC 371 (QB), the High Court held that a reference in the auction brochure to a bidder needing to read the legal pack was not enough for a seller to have complied with its duty to disclose a known defect.

Simple facts

Mahil had been the highest bidder at a property auction sale, bidding £130,000 for a plot of land adjacent to a house in Leicestershire which she intended to build her own house on. The auction particulars said,

‘There is also excellent scope for development, subject to any required planning permissions, making a superb investment opportunity’.

Mahil had signed a memorandum of sale and paid a 10% deposit with an agreed completion date, but then refused to complete. The seller had accepted Mahil’s refusal as a repudiatory breach of contract and later sold the property at a second auction, bringing proceedings against her for the shortfall between the price agreed by Mahil and the £75,000 subsequently obtained.

After the auction, Mahil found out the land was subject to an overage clause contained in a deed of covenant which granted a previous owner 50% of any increase in the value attributable to planning permission for residential development. If she built a house on the land then it was likely that the overage provision would kick in.

The legal pack prepared for the auction included a copy of the deed of covenant, and the deed was referred to in a restriction on the Land Registry title. There was no reference to the overage covenant in the auction brochure and no oral reference was made to it by the auctioneer. Mahil had not looked at the legal pack prior to the auction.

Mahil argued that she had been induced into entering the contract by misrepresentation, having relied on the description of the land in the auction catalogue and on the absence from the sale documents of mention of an overage covenant.

Mahil also claimed that the seller had not fulfilled its duty to disclose the existence of the covenant, and so she had validly rescinded the contract. She brought a counterclaim for repayment of the 10% deposit and premium.

Decision

The High Court held that the seller had breached its duty to disclose defects in title. The seller was fully aware of the overage provision and that it would need to be complied with on redevelopment.

Simply including the title information in the legal pack, and telling bidders to read the pack, was not enough. The overage should have specifically been brought to the bidders’ attention by mention in the particulars, an addendum notice or specific reference by the auctioneer.

The practical takeaway from this case is that the usual principle of ‘caveat emptor’ (‘Let the buyer beware’) does not apply to defects in title on an auction sale. Sellers must disclose defects clearly in auction brochures and bring them to the potential buyers’ attention.