Obligations for pre-contract searches and enquiries

A number of the High Court decisions reported over the past few months highlight the obligations of solicitors, sellers, and local authorities in relation to pre-contract searches and enquiries. The courts have also considered and given guidance on the effect of a unilateral notice registered to protect an agreement for lease and the effect of expiry of a notice to complete.

On a practical note, the Land Registry has recently simplified the process for postponement of charges and changed its practice in relation to the registration of easements. The Council of Mortgage Lenders (CML) has also announced amendments to the CML Handbook from ?30 November 2015 to remove the ability of ?lenders to impose specific insurance requirements.

Pre-contract enquiries

The case of Thorp and another v Abbotts and another [2015] EWHC 2142 (Ch) has provided some useful guidance on the extent to which sellers are required to provide information and the liability ?of sellers for inaccurate replies to pre-contract enquiries. This case related to replies to question three in the 2007 version of the seller’s property information form (SPIF). The question related to any communications or notices affecting the property or the neighbouring property and any negotiations or discussions with a neighbour affecting the property.

The seller had been involved some time earlier in a planning and consultation process in relation to three sites in the vicinity of the property that had potential for major housing development, but at the time of completing the SPIF there were no specific proposals that, in the seller’s view, affected the property, and accordingly both questions were answered in the negative. 

Subsequently, planning permission was obtained allowing the development of a neighbouring site for 800 houses, a care home, and other developments. It was alleged that had the buyers been aware of this proposal, they would have withdrawn from the transaction, and that the seller’s failure to disclose the existence of the consultation documents and his discussions with a leading member of a local campaign group, neighbours, and the local authority amounted to fraudulent misrepresentations. 

The High Court considered the terms ‘notice’, ‘communication’, ‘discussion’, and ‘neighbour’, and held that these should not be construed so widely as to require a seller to disclose speculative and remote information that may or may not affect the property in the future. It was also held that the possible effect on the value of the property alone was not enough to require disclosure. The current SPIF includes a broader question than the one in this case; however, the view on interpretation provides useful guidance on the approach to be taken in providing information. 

In contrast to the decision in the case of Kandola v Mirza Solicitors [2015] EWHC 460 (Ch), where it was held that a solicitor had a limited duty to advise an experienced client as to the risks of a transaction, in Orientfield Holdings Ltd v Bird & Bird LLP [2015] EWHC 1968 (Ch) the High Court held that the solicitor should have warned his client of information about plans to build two schools in the same street as the property. These plans were disclosed in a planning report that the solicitor had obtained prior to exchange of contracts, but were not mentioned in his report on title. The property in question was a high-value residential property ?in central London, and it was established that in circumstances where the information obtained ?by the solicitor might have affected the client’s decision-making process, and where the development was likely to have a detrimental ?effect on the value of the property, then the solicitor had a duty to inform the client.

The duty of local authorities to provide correct information in local searches was considered in ?the case of Chesterton Commercial (Oxon) Ltd v Oxfordshire County Council [2015] EWHC 2020 (Ch). The High Court found the local authority was liable for an incorrect reply to a search that had stated the property was not a highway maintainable at public expense, and for failing to disclose the fact that for several years it had been investigating whether or not part of the property was in fact such a highway. The local authority was found to have a duty of care in tort to ensure its highways records are kept up to date and a statutory duty to accurately answer the buyer’s enquiries. The failure to provide the correct information also amounted to a negligent misstatement and the buyers were entitled to recover the difference in the value of the property.

Notice to complete

In the case of Hakimzay Ltd v Swailes [2015] EWHC B14 (Ch), the High Court looked at the effect of the expiry of a buyer’s notice to complete. A notice to complete makes time of the essence in the contract and enables the innocent party, who must be ready, willing, and able to complete, to elect either to terminate the contract or to seek specific performance on expiry. This case clarifies the fact that the seller’s failure to complete constitutes a repudiatory breach of contract, which gives the buyer the right to either accept that repudiation ?and terminate, or alternatively to affirm the contract, in which case it continues and the buyer can require specific performance.

The defaulting party cannot rewrite the terms of the contract on expiry of the notice to complete by offering late completion without agreement as to an extension of time and then seek to terminate on the basis that time remains of the essence. The seller would need to agree and fix a new date for completion that was reasonable in all of the circumstances before seeking rescision.

Effect of a unilateral notice

In a professional negligence claim against solicitors who acted in connection with the grant of 33 long leases to a housing association, A2 Dominion Homes Ltd v Prince Evans Solicitors [2015] EWHC 2490 (Ch), the effect of a unilateral notice was considered. ?The solicitors entered a unilateral notice against the freehold title to protect the agreement for lease; however, the freeholder then granted a charge to ?its bank whereby it could not grant leases of flats without prior consent. An application to register the charge was then made, which was revealed on the defendant’s official search prior to completion of the leases. The leases were subsequently completed without the bank’s consent.

The question of whether the leases had priority over the charge by virtue of the unilateral notice was dealt with as a preliminary issue, and it was held that as the freeholder was bound by the agreement for lease, the chargee should be in no different position. The registration of the UN1 form (an application to enter a unilateral notice) would have been revealed by the bank’s searches and the priority afforded to the agreement for lease also protected the completed leases, and any distinction between the two was in turn ?artificial and wrong.

Land Registry procedures

Outside the courts, the Land Registry has continued to streamline and simplify its procedures by introducing a new practice ?of accepting a letter of postponement for registering any type of postponement of ?a charge. This relates to all applications ?processed on or after 10 August 2015. 

It has also updated practice guide 62 in relation to registration of easements. If an application ?is made for the entry of an agreed notice (form AN1) or unilateral notice rather than by way of a change to the register (form AP1), the Land Registry will no longer add a note to the register that ‘the grant or reservation of the rights has not been completed in accordance with [section 27 of the Land Registration Act 2002] and so does not operate at law’. 

Such a note is felt to be unnecessary and ?could also be misleading, as an application to register an easement can only be made in form AP1; forms AN1 and UN1 will not meet the registration requirements and therefore can ?never operate in this way, as this does not necessarily mean that the interest is valid.

CML Handbook

Finally, practitioners should note that the CML ?will amend its handbook on 30 November 2015 ?to remove the individual CML lender’s ability to impose its own list of requirements in relation to buildings insurance to be taken out no later than completion. This change follows concerns that the increasing tendency of borrowers to arrange their own insurance online makes it difficult for conveyancers to easily check that the policy complies with lenders’ bespoke requirements.

Conveyancers will still be required to make reasonable enquiries to satisfy themselves ?that buildings insurance has been arranged. ?They must also remind the borrower that this must be in place no later than completion and maintained throughout the mortgage term, but they will not be obligated to police either of these requirements. SJ

Belinda Walkinshaw is a partner at SA Law @SA_Law salaw.com