Court Reversal for Vendor Who Didn't Know What He Had Sold

The recent case in which the court was asked to rule regarding a vacant flat that was part of a property sold at auction – the existence of which neither the seller nor the buyer was aware of until after the sale – has now been heard by the Court of Appeal.

It seems impossible that such a circumstance could arise, but the seller was the executor of an estate and had never visited the property, and the buyer had bought it as an investment without inspecting it beforehand.

According to the auction particulars, the property comprised a freehold shop with a flat on the first floor that was subject to a 125-year leaseback. However, there was an additional flat on the ground floor to the rear of the shop.

The seller argued that the second flat was not included in the sale and the buyer contended that it was.

The High Court took the rather odd view that the ground-floor flat had been conveyed, but was subject to the same 125-year leaseback as the first-floor flat. The buyer appealed to the Court of Appeal.

The Court considered that a sale of a flying freehold, which would have resulted had the ground-floor flat not been conveyed, would be highly unusual and would have been highlighted in the auction particulars.

However, the Court could not agree that a term creating a lease should be inserted into the agreement. In its view, the most reasonable approach was to conclude that the vacant flat formed part of the freehold property sold at auction.

The result left the buyer with a windfall – an unexpected vacant flat – and the executor with a red face because the property was sold for a sum below its true market value.

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