Selling property at auction? How much must you disclose?

Article by Avi Barr – Secured Lending and Property Partner and Head of the London office of BBS Law

Auction sales tend to be a great way of disposing of tricky properties. It may be a shop in prime retail territory with a rapidly weakening tenant covenant or a challenging development site.  You would think that any buyer at an auction ought to know that what you see is not necessarily what you are going to get. However, a recent High Court case has tipped the balance strongly in favour of careless buyers by placing a surprisingly strong responsibility on sellers at auction and auctioneers to ensure that any defects are clearly pointed out to bidders.

The High Court case in SPS Groundworks and Building Ltd v Mahil involved Mr Mahil who purchased a piece of land for £130,000 at auction.  The land had development potential but was subject to overage provisions (additional payments normally to the seller contingent on future events).  The overage deed was included in the pack and the title even had reference to the overage arrangement.  However, Mr Mahil had not downloaded the legal pack and there was no mention within the auction particulars of the overage, nor did the auctioneer make any reference to the overage during the auction itself.  Mr Mahil decided not to complete and was then sued by the seller for his loss.  Although the initial County Court decision came up with what most of us would expect to be the anticipated decision in favour of the seller on the basis of, “caveat emptor”, being the very basic principle that any buyer ought to be aware of what they are buying, the High Court took a different view and actually agreed with Mr Mahil that the initial decision was wrong in law to conclude that the seller had fulfilled its duty to disclose the defect in title by simply including it in the legal pack.

The High Court decision will definitely be a surprise to many but underlines the importance when listing properties for auction (particularly where parties may be bidding unrepresented) to ensure that there is proper disclosure of any defects and its conclusion was that standard contractual conditions and auction disclaimers could not be relied upon to save the seller where a defect in the property was not clearly brought to the attention of prospective buyers.  A purchaser was entitled to assume, in the absence of any clear signposting to the contrary, that entries on the property register were not problematic and that the lot itself was being sold on a standard basis and in this case, the seller had failed to clearly draw sufficient attention to the overage.

For both buyers and sellers, auctions can be minefields and this decision creates even more uncertainty.  How much more did the seller have to do here? Is it necessary to have every defect clearly stated in the catalogue or announced by the auctioneer in the room. In some cases that would defeat the point of selling at auction at all.  If you are a seller, do make sure that you have clearly presented your lot to avoid any claims based on a failure to disclose material issues.  If you are buying at auction, particularly where development may be involved, do ensure that you at the very least download and review the pack and almost always it will be the right thing to do to have a sufficiently skilled solicitor review the pack on your behalf before you enter the bidding.