It is unusual for a property to be sold under a contract that does not contain specific provisions dealing with the title to the land. However, in such a case, the open contract rules apply and the seller will be required to deduce a good title to the property that he has contracted to sell.
Where the seller’s title is defective and the buyer had knowledge of the title defect, under the open contract rules the inference is that the buyer was prepared to accept a title that was less complete than that which the law would otherwise have given him. Consequently, actual knowledge of a title defect will relieve the seller from having to deduce good title.
Ezekiel v Kohali [2009] EWCA Civ 35; [2009] PLSCS 33 concerned a legally binding agreement for the sale of land that did not contain any specific provisions dealing with the title to the land. Unfortunately, the sellers were unable to deduce title to parts of the site and also to land over which the buyers were to have been granted rights of access. The buyers sought a reduction in the price or, alternatively, damages for misrepresentation on the ground that the sellers had repeatedly claimed ownership of all the land. The Court of Appeal upheld the judge’s decision that the buyers had actual knowledge of the defects in the sellers’ title and ruled that the buyers were liable to complete the purchase at the full contract price.
The decision highlights an important difference between the open contract rules and the rules that apply to contracts that contain provisions expressly dealing with title to the land being sold. If a contract provides that the seller will deduce good title to land, it will not then be open to the seller to sidestep its obligation by proving that, at the time of the contract, the buyer knew that the seller’s title was defective. Consequently, the seller will have to deal satisfactorily with any requisitions on title, failing which the buyer may withdraw. Most sellers deal with this by deducing – and requiring the buyer to accept – their title beforehand.
Was the litigation worthwhile? The Court of Appeal commented that the cost of the litigation had probably exceeded the contract price. Their lordships thought that defective title indemnity insurance might have answered better, especially as there was nothing to indicate that anyone else was claiming, or disputing title to, the missing land. In fact, the buyers had been offered cover, but the cover was, inexplicably, conditional on the grant of planning permission (which was not obtained).
It is possible to pay a single premium to buy defective title indemnity insurance that provides financial cover up to an agreed limit of liability to the insured, and its successors in title, against a wide variety of title defects. Products range from self-issue indemnity cover, which can even be purchased on-line, to bespoke policies, which can be tailored to suit individual circumstances and requirements.
Allyson Colby is a property law consultant
