Defects in title: what a seller should know!

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08 October 2010

Quite often property is sold subject to something.  This could be a lease, or a problem with the title which the Seller is aware of but does not want to rectify.

Often the problems that a property is burdened with are of a technical legal nature and the Seller does not want the transaction to become bogged down supplying information on a defect to a Buyer, so will state in the sale contract that a Buyer may not raise enquiries on the defect.

In Area Estates Ltd v Wier this was exactly the case.  At auction W contracted to buy a freehold property from A.  The contract contained a special condition that a lease of the property had determined by operation of law and that W may not raise any requisition on this.  

The lease had not in fact ended because the surrender was void at law.

Although the surrender was subsequently ratified, W sought to rescind the contract.  At first instance the Court held that W was entitled to complain about the existence of the lease and rescind the contract.

On appeal by A, the Court of Appeal rejected A's arguments that the defect was only technical and that the contractual condition passed to W the risk that the lease continued.

When dealing with land subject to a defect it is important that all reasonable searches are made by the Seller to discover the defect so that it may be properly and fully described in the contract.  The risk connected to the defect can only then be effectively and properly passed to the Buyer and the Seller avoid the Buyer being able to withdraw from the contract.

Area Estates Ltd v Weir [2010] EWCA Civ801

For further information contact Joel Woolf on 0117 902 6617 or email: joel.woolf@burges-salmon.com

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