Legal notes: Searching for due diligence

Allyson Colby looks at a recent Court of Appeal case in which a company sought damages from its solicitors over the conveying of planning information contained in a pre-contract search Key points Conveyancers should report the results of all their searches to buyers so that they can decide what they consider to be important It may not be enough to repeat information from a search report without explaining its potential significance to a buyer The range of searches available to conveyancers has increased. It is also now possible to make additional searches to obtain information about the wider neighbourhood, instead of focusing solely on the target property. This puts practitioners in a quandary. What searches should they make on behalf of buyers? Is there a geographical range within which they should search? If so, what is it? And how should they report to clients? The first instance decision in Orientfield Holdings Ltd v Bird LLP [2015] EWHC 1963 (Ch); [2015] PLSCS 215 highlighted the importance of understanding clients’ requirements when requisitioning searches and the care needed when reporting to clients on the information obtained. The Court of Appeal’s judgment, in which it upheld the decision, suggests that expectations of solicitors may be more exacting still: see [2017] EWCA Civ 348; [2017] PLSCS 104. Due diligence The company sought damages from its solicitors after refusing to complete a contract to buy a residential property for £25.75m, following the discovery that two nearby schools were to be redeveloped into a six-storey academy together with some residential units. The sellers had sidestepped a preliminary enquiry asking if they were “aware of any proposals to develop property or land nearby”. They advised the company to rely on its own enquiries. In subsequent correspondence with the company’s solicitors, the sellers’ solicitor stated, carefully, that “our clients are not aware of any proposals to develop the immediate neighbouring homes”. They also suggested that the company should obtain a comprehensive planning report if it wanted to know about planning applications in the area. The company’s solicitors’ Plansearch Plus report (which does not figure among those that are generally considered essential in the course of ordinary due diligence) revealed 251 planning applications within 250 metres of the property. One such application, for a large commercial development, had been successful. It was in the same road as the property, on the site of the schools, but was not highlighted in the Plansearch summary (although applications closer to the property were). Inexplicably, the solicitor made no mention of the search in his report to the company, stating only that “the information provided by the sellers in their replies to our pre-contact inquiries did not reveal anything that adversely affects the property”. The company became aware of the proposed development after exchange of contracts and refused to complete due to concerns about the negative impact on the property. Were its solicitors liable for the sums forfeited, or lost, because they had not reported properly to their client? The High Court upheld the company’s claim. The company had not told its solicitors how it planned to use the property or asked them to make any specific searches or enquiries. Therefore, they had not actually needed to obtain a Plansearch report to discharge their duty to their client. But, having done so, they should not have assumed that only developments within 100 metres were material and should have reported the results to the company. Causation The solicitors obtained leave to appeal, but on the question of causation only. They drew the Court of Appeal’s attention to the fact that the judge had not said that they should have investigated further before reporting the results of the search to their client. Therefore, so they argued, they could only have summarised the results in their report to the company and this would not have revealed the significance of the development. The Plansearch report did not go into detail and there was no evidence to suggest that, if the company had seen the report, it would have singled out the application that caused it to withdraw from the transaction and instructed its solicitors to investigate further. Consequently, the solicitors did not believe that their client would have had any cause to withdraw from the transaction before exchange of contracts. But the Court of Appeal upheld the judge’s decision. He had ruled that “the non-negligent solicitor would have… included within the report on title a summary of the purpose of the Plansearch report, followed by a summary of the results contained in that report, coupled with a short description of what further information could be obtained if it was required and a request for instructions as to how the recipient of the report wished the solicitor concerned to proceed”. Gloster LJ interpreted this to mean that a proper summary of the search results would have highlighted the development and explained its potential significance. In other words, “it would not merely have repeated basic information from the Plansearch report”. The company would then have instructed its solicitors to look into the development, the details would have emerged and the company would have withdrawn from the transaction. Reports on title The suggestion that it may not suffice to repeat basic information from a search report will concern practitioners. What is required? Gloster LJ noted that the Plansearch report revealed only one current large proposed commercial development in the vicinity, potentially involving different uses, and that the sellers had “been suspiciously qualified in their answers” to the company’s planning enquiries. It seems that an explanatory paragraph along these lines, coupled with a request for further instructions, might have satisfied the court. However, one size will not fit all and practitioners will need to tailor the analysis in their reports to reflect the terms upon which they have agreed to act, the results of the particular searches made, and the demands and needs of individual clients. Allyson Colby is a property law consultant