The decision of the Court of Appeal in the case of Area Estates Limited -v- Weir has made it clear that whilst its open to a Seller to dispose of a property subject to a defect in title, this will only have the desired effect from the seller’s standpoint where the description of the defect is absolutely clear and comprehensive.  It wont be enough to make a broad statement in a sale contract that a particular problem subsists and that the buyer is to be treated as having actual knowledge of it.

The defect in this case concerned a lease which the seller believed had been surrendered by operation of law.  Had the seller carried out a bankruptcy search against the tenant it would have established that the tenant was in financial difficulties and the ability of the tenant to surrender the lease was constrained by the rules relating to insolvency.

This case highlights the risks of informal surrenders (as when keys are handed back) and the importance of carrying out the relevant searches.

Going forward sellers will need to consider at an early stage what, if any, defects affect (or may affect) a property. Failure to do so may, as happened in the Area Estates case, result in buyers being able to extricate themselves from purchase contracts.

Tags: Area Estates Limited -v- Weir, defects, property defects