Last edited 12 May 2016

Caveat emptor in property sales

The phrase ‘caveat emptor’ (or ‘buyer beware’) refers to the general principle that the seller of an item will generally know more about it than the purchaser and so the purchaser must take care to check the item before agreeing a price and purchasing it.

Whilst legislation such as the Sale of Goods Act and the Unfair Contract Terms Act provide some protection to consumers, allowing them to return goods that are not of an acceptable standard, it does not apply to the sale of property (although it may apply to new goods in a property).

The purchaser of property must take care to satisfy themselves that there are no unacceptable defects in the quality, fitness, or title of that property, as they may have no remedy against the seller if it turns out that there are defects. As a result, buyers will tend to investigate the title to a property they are considering purchasing, commission surveys and carry out searches to satisfy themselves that the property is acceptable.

Whilst the seller of property cannot make untrue statements or representations, they are under no obligation to disclose material facts to the purchaser. The only exception to this is if the seller is aware of latent defects in title or issues relating to the property, which the purchaser could not reasonably discover by inspection, then the seller must disclose those defects to the purchaser. Failure to do so can entitle the buyer to claim damages or to rescind the contract.

As it can be difficult to determine whether a defect is ‘obvious’ and so does not need to be disclosed, sellers may adopt a cautionary approach, however this can affect the price or the progress of the sale.

It is also important that the seller does not make statements or sign contracts that confirm they are not aware of any defects.

This combination of failure to disclose and misrepresentation can produce complicated situations. For example, a seller may not be obliged to disclose the extent of the title of a property, as this should be reasonably discoverable by the purchaser. However, if the property details falsely indicate the extent of the title then this may amount to misrepresentation.

The situation is complicated further by the existence of guarantees (which should be transferrable, but are only as good as the company that gave them), collateral warranties and third party rights which may give additional rights to the purchaser.

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