Sale of land – Mistake – Construction of contract – Claimant successfully bidding for property at auction – Parties mistakenly believing property comprising shop and one flat – Parties subsequently discovering existence of additional flat – Claimant seeking order for specific performance of sale contract requiring transfer of whole property – Defendant vendors arguing claimant entitled only to lesser interest – Whether claimant entitled to transfer of entire property – Claim allowed in part
The defendant executors had arranged to sell a mixed commercial and residential property at auction. The auction catalogue stated: “Please note the General Conditions of Sale which are included with this catalogue and the Special Conditions of Sale which are available on request. … Prospective purchasers are assumed to have inspected the properties in which they are interested and to have made all usual pre-contract searches and enquiries.”
The claimant investor purchased most of his investments at auctions and never viewed the properties for which he bid. He was interested in one of the defendants’ properties, the particulars of sale for which indicated that it comprised a ground-floor shop together with a first-floor flat, with the flat to be sold subject to a long lease in favour of the defendants. The auction catalogue gave the term of that lease as 125 years. The claimant attended the auction and received an addendum sheet that stated: “Shop – the rent is £7,000 per annum… total income is £7,100 per annum and there is no rent review in 2011.” On that basis, the claimant made a successful bid and signed a memorandum of sale.
The parties entered into the contract mistakenly believing that the building comprised a ground-floor shop with a flat above, whereas it also included a ground-floor studio flat. An issue arose as to the legal effect of that mistake.
The claimant sought an order that the defendants should transfer to him the freehold of the entire property subject to him granting them a 125-year lease of the first-floor flat. The defendants resisted that claim, inter alia, on the basis that, as a matter of construction, the contract did not require the transfer of the freehold of the entire property, but only a lesser interest in it.
Held: The claim was allowed in part.
The factual matrix that the court had to take into account was that the property comprised a shop, together with the first-floor and ground-floor flats. Not only did the auction catalogue inform potential purchasers that they would be assumed to have inspected the property before making a bid, but the contract provided that any buyer had to satisfy himself as to the accuracy of the particulars and the special conditions. The contract was therefore to be construed on the basis that the purchaser had done so; it was not appropriate for the court to construe the contract on the basis that the purchaser had not complied with his contractual obligation.
The court was conducting an objective exercise. It had to ascertain the intention that reasonable people would have had if placed in the situation of the parties. The contract had to be interpreted in accordance with what it would mean to a reasonable person who had inspected the property and who knew what was visible on such an inspection. In the instant case, an objective observer would assume that reasonable people in the position of the parties, and given the express terms of the contract, would be aware of the true layout of the property. The true facts had been reasonably available to both parties: Mustafa v Baptist Union Corporation Ltd [1983] 1 EGLR 177; (1983) 266 EG 812 and Investors Compensation Scheme Ltd v West Bromwich Building Society (No 1) [1998] 1 WLR 896 considered.
In the instant case, there was a clear mistake on the face of the instrument and it was clear what correction ought to be made to cure it. Accordingly, the court, construing the contract against the fact that the property comprised a shop and the first-floor and ground-floor flats, would order specific performance of the contract to sell the freehold of the property subject to the claimant executing a 125-year lease to the defendants at a rent of £100 in respect of each of the flats. That was a sensible and workable construction of the contract, and the only possible construction if the contract was not to be void for uncertainty: East v Pantiles (Plant Hire) Ltd [1982] 2 EGLR 111; (1981) 263 EG 61, Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38; [2009] 3 EGLR 119 and Westvilla Properties Ltd v Dow Properties Ltd [2010] EWHC 30 (Ch); [2010] 2 P&CR 19 considered.
Michelle Stevens-Hoare (instructed by Murdoch Solicitors) appeared for the claimant; Zachary Bredemear (instructed by Gelbergs Solicitors) appeared for the defendants.
Eileen O’Grady, barrister
