What is Caveat Emptor?
Along with ‘ad hoc’, ‘carpe diem’ and ‘bona fide’, caveat emptor is one of those Latin phrases which is firmly engrained in modern English. The ‘Let the Buyer Beware’ principle’s application to property transactions has long placed the onus (Latin again!) on the purchaser of property- warning them to ensure that the property they are purchasing is as they think it is.
What does this mean in practice?
One example of caveat emptor influencing transactions is the importance of a home-buyer’s survey to ensure that there are no hidden defects (see below) that a cursory check would not reveal. This has always been the responsibility of the buyer. Whilst a seller is supposed to disclose any problems that they are aware of and/or asked about specifically (perhaps by way of pre-contract enquiries), they do not have to investigate whether there are any others. Once the sale is complete, the cost of any remedial work for defects that become apparent would fall on the buyer- potentially a very costly problem!
Naturally, when buying property at an auction, undertaking such checks can be much more difficult and purchasers have to rely on a legal pack or a brief look at the property from a distance rather than a detailed inspection or survey.
What is a defect?
Defects can include physical problems (subsidence, damp, blocked gutters), societal problems (neighbour disputes, planning permission) and problems with title (missing rights of way, overage agreements, easements). As stated above, a seller should disclose any defects of which they are aware and could open themselves up to misrepresentation claims if they do not.
Misrepresentation requires:
– a false representation by the seller and;
– the false representation to have induced the purchaser to buy the property and;
– the purchaser to have suffered loss.
What has changed?
Lately, we have been provided with more guidance in relation to caveat emptor and misrepresentation by the courts in a case relating to the purchase of land via an auction. SPS Groundworks & Building Limited v Ms Satvinder Kaur Mahil. To summarise this case-
- The land for sale was described by the seller as having ‘excellent scope for development’ and being a ‘superb investment opportunity’.
- The purchaser had briefly viewed the land, but did not view the legal pack.
- The land being sold was registered as green space, subject to an overage provision (regarded as a title defect) and considered by the Local Authority to be ‘unsustainable’ with regard to further development.
- The overage defect was mentioned in the well-publicised legal pack, which the purchaser did not read, despite being an experienced developer
- The purchaser made the successful bid of £130,000 and then refused to go ahead with their purchase on learning of the above issues
- The seller then brought proceedings against the buyer for the shortfall.
As most people would probably expect, the trial Judge sided with the seller, citing caveat emptor. The purchaser was experienced in buying land at auction and knew of the existence of the legal pack and its purpose but failed to read it. The seller had included all required information about the overage in the legal pack and ample opportunity to read to legal pack had been provided.
However, the appeal Judge did not agree.
Relying on Farqui v English Real Estate [1978] WLR 963, the Judge confirmed that in the case of defects in title (such as the overage agreement), this information must be brought directly and specifically to any bidder’s attention. The Judge suggested that this should be done in the sales particulars.
The appeal court also said that, with regards to misrepresentation, the statements about the investment opportunity were not those that a reasonable person would have made, and so fulfil the first stage of misrepresentation. However, the second stage of misrepresentation was not met as the court held that the purchaser had made the decision to buy the land based on her brief viewing and had ignored the seller’s representations, just as she had ignored the legal pack.
To conclude
This somewhat surprising case may indicate an easing of the buyer beware principle, especially where the sale involves an auction. The vendor’s disclosure duty in Farqui v English Real Estate [1978] WLR 963 ‘beats’ caveat emptor where a defect relates to the title of a property. It creates a further duty on the seller to specify a defect. Giving a buyer the means to discover a defect is not enough.
Perhaps we will also see more restraint in sales advertisements. The Judge seems to have considered that if the seller had instead stated ‘some’ instead of ‘excellent’ scope for development, a reasonable person could quite easily have believed this and there would have been no false representation.
It will be interesting to see, in future cases, just how far the new duty will extend.
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Original Author: Nick Youngson – link to – http://www.nyphotographic.com/
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