Area Estates Ltd. v Weir

A vendor cannot rely on a contractual exclusion of the ordinary obligation to give good title where the vendor knew, or ought reasonably to have known, of a title defect. Knowledge which the vendor’s solicitor should have acquired through proper advice may be treated as the vendor’s knowledge. A specific clause drawing attention to a lease does not protect an unqualified and inaccurate assertion that the lease has ended. The purchaser’s notice of the register does not cure the defect. A subsisting lease affecting freehold land sold with vacant possession is not merely a technical conveyancing defect where its removal depends on court ratification or a trustee’s disclaimer and the outcome remains uncertain. A good title may be declared only where the circumstances show beyond reasonable doubt that the purchaser faces no risk of a successful assertion of the encumbrance.

Area Estates contracted to sell a freehold property to Mr Weir. The title disclosed a lease, but a special condition stated that the lease had determined by operation of law and required the purchaser to accept that position. The purported surrender was ineffective because the lessee was subject to a pending bankruptcy petition. The purchaser sought rescission and repayment of his deposit.

Mr Robin Knowles QC, sitting as a Deputy High Court judge in the Chancery Division, granted summary judgment for the purchaser on 18 December 2009. The vendor appealed, arguing that the special condition prevented objection to the lease and that the lease was only a technical conveyancing defect. A statutory defence was abandoned on appeal. The central issues were the effect of the contractual condition and whether the subsisting lease justified rescission.

1. Appeal dismissed. The judgment of Carnwath LJ was agreed by Moore-Bick LJ and Wilson LJ. The vendor’s statutory defence was no longer pursued, leaving the effect of ESC 7 and the alleged technical defect for determination.
2. ESC 7 could not protect the vendor against the inaccurate assertion concerning the lease. A condition excluding the vendor’s ordinary obligation to give good title cannot cover a defect which the vendor knew or ought reasonably to have known. The principle was supported by Re Banister (1879) 12 ChD 131 and applied through the binding decision in Becker v Partridge [1966] 2 QB 155. A vendor’s solicitor’s knowledge, or knowledge which proper advice would have supplied, may be treated as equivalent to actual knowledge. The purchaser’s assumed notice of the register did not cure the problem, since the bankruptcy petition did not conclusively establish that the surrender was invalid and the unqualified statement implied that reasonable steps had been taken to verify it.
3. The court observed that a general obligation to give vacant possession may be inconsistent with an occupational lease, as illustrated by Cumberland v Consolidated Holdings Ltd [1946] KB 264, but such a provision does not necessarily override a specific clause dealing with the lease. The interaction depends on the contract as a whole.
4. It was unnecessary to decide conclusively whether Law of Property Act 1925 section 42(3) invalidated ESC 7. Carnwath LJ nevertheless considered it more likely that an “outstanding legal estate” referred to the quality of the interest to be transferred, rather than to an encumbrance.
5. The subsisting lease was not a mere technical conveyancing defect. Its removal required court ratification or a trustee in bankruptcy’s disclaimer, neither of which was within the vendor’s sole power and neither of which had a foregone outcome. Applying MEPC Ltd v Christian-Edwards [1981] AC 205, the vendor could not show beyond reasonable doubt that the purchaser faced no risk of a successful assertion that the lease subsisted. The order for repayment of the deposit, interest and costs therefore stood.

• Court of Appeal (Civil Division) [2010] EWCA Civ 801: appeal dismissed.
• High Court, Chancery Division: Mr Robin Knowles QC, sitting as a Deputy High Court judge, granted the purchaser summary judgment on 18 December 2009 and ordered repayment of the deposit with interest and costs.