The range of searches available to conveyancers conducting due diligence in property transactions has increased dramatically in recent years. Many will consider this a good thing. However, it puts practitioners in a quandary. What searches should they make on behalf of buyers and how far do their duties to report to their clients extend?
Orientfield Holdings Ltd v Bird v Bird LLP [2015], which has not yet been fully reported, may prove to be one of the most important cases on this subject this year. The company was suing its solicitors for failing to advise on the results of a Plansearch Plus report obtained in connection with the acquisition of a residential property for £25m. Plansearch Plus reports contain useful information about planning activities in the area around a property. They deal with a wider geographic area than would ordinarily be covered by a local search and the report revealed that a nearby school was to be redeveloped and enlarged.
The seller had opposed the redevelopment on two occasions, but stated in replies to pre-contract enquiries that he was not aware of anything “nearby” that adversely affected the property, and the buyers’ solicitors made no reference to the school development in their report to the buyer. The buyer became aware of the position shortly before completion, rescinded the contract, and settled proceedings against the seller just before trial on terms that the deposit was to be split equally between the parties, with each party being responsible for its own costs. Were the buyer’s solicitors liable for the remainder of the buyer’s losses?
The court ruled that solicitors are obliged to undertake investigations that a client expressly or impliedly requests and, if they consider that information might be important to a client, they have a duty to bring it to the client’s attention. Having requisitioned the report, the law firm was under a duty to explain the results to the buyer. A reasonably competent solicitor with the report to hand would have considered any development within 100m of the property to be of significance and it had been a breach of duty on the part of the law firm to say that the information in the report did not reveal anything that adversely affected the property.
The judge accepted that the buyer had read the law firm’s report on title and, since the buyer was spending more than £25m, and had been expecting to spend £4m on refurbishment, it had been fully entitled to view the school development as adverse to the value of the property. If it had known about the development, it would have withdrawn at an earlier stage or instructed the firm to make further inquiries before assuming any financial risk. Consequently, the buyer’s claim was upheld.
Practitioners will be keen to study the judgment carefully when it appears. From the summaries published to date, it would not appear that Plansearch Plus reports are required in every case. However, practitioners who do obtain such reports must then report on them to their clients. This seems eminently reasonable; after all, the client is paying for the report.
The more difficult questions for practitioners arise from how they exercise their professional judgment. What searches should they make in the first place? And what information revealed in the results will a buyer regard as important? This is where it is essential to know your client, and to react accordingly. Perhaps law firms should supply clients with more information about the searches that are available as part of the due diligence process and obtain full instructions from them at the very outset, so that everyone knows where they stand?
Allyson Colby is a property law consultant
