Property auctions offer an opportunity to pick up a bargain. None the less, prospective buyers should never be enticed into making a purchase without first reading the relevant documents.
The property at the centre of the dispute in Westvilla Properties Ltd v Dow Properties Ltd [2010] EWHC 30 (Ch); [2010] PLSCS 19 was offered for sale by auction. The ground floor of the building was let to a building society. The contract for sale provided that, on completion, the buyer would grant the seller a 999-year lease of the upper parts of the property at a peppercorn rent. The contract included a draft of the intended lease, which referred to two plans that were not attached.
In addition, the terms of the lease were unusual; the lease allocated responsibility for the provision of services to the seller, as the tenant of the upper parts of the building. The lease also provided for the buyer, as the landlord, to pay a service charge to the seller, as the tenant. However, the service charge percentage for which the buyer was to be responsible was left blank.
The buyer did not read the draft lease before contracting to purchase the property for £850,000. Following the purchase, the buyer sought to restructure the service charge provisions, but the parties were unable to agree new terms. Consequently, the buyer sought to withdraw from the transaction, arguing that the unspecified service charge percentage, and absence of lease plans, rendered the contract void for uncertainty.
The judge accepted that there may be cases in which a draftsman’s ineptitude will defeat a court’s efforts to discover the meaning of contractual provisions, but reminded the buyer that the courts prefer to uphold the validity of documents that are clearly intended to have commercial effect, if they can properly do so. Importantly, the courts can correct mistakes in documents when interpreting them. If there is an obvious mistake on the face of a document, and it is clear what corrections are needed to rectify the error, there is no limit to the amount of red ink or verbal rearrangement or correction allowed: Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38; [2009] PLSCS 197.
The mistakes in the contract and draft lease were obvious and it was possible to specify, with reasonable certainty, the changes needed to correct them. The missing plans were in the auction pack that was made available to bidders, and a reasonable person would have understood that the contract referred to those plans.
It was also possible to fix the missing service charge figure at 36%. This was the amount paid by the building society, and a reasonable person would have expected the landlord to collect the service charge from the building society and pass it on. Consequently, the contract was not too uncertain to be enforced and the seller was entitled to an order for specific performance against the buyer.
The litigation underlines the importance of checking documents carefully before proceeding. In recessionary times, simple errors may trigger expensive litigation.
Allyson Colby is a property law consultant
