Key points

  • Buyers and sellers alike should always inspect the property to be bought/sold before committing themselves
  • The fact that a property has been sold at auction may be relevant when interpreting the resulting contract, as it will not have been negotiated by the buyer

Bashir v Ali

The facts in Bashir v Ali were very unusual, as neither the seller nor the buyer had inspected the property prior to exchange of contracts. The seller was an executor, and the buyer bought the property at auction as an investment without inspecting it.

The auction particulars described the property as freehold, with a shop on the ground floor and a residential flat on the first floor. The catalogue stated that the property was being sold subject to an existing lease of the shop and a leaseback for 125 years of the first floor flat.

In fact, there was a separate flat at the rear of the ground floor, which had not been mentioned in the particulars or in the conditions which applied to the sale. The flat was vacant.

Between exchange and completion, the seller discovered the existence of the additional flat. The seller argued that the sale contract was for the freehold of the shop together with a flying freehold of the first floor flat, and that the ground floor flat was excluded from the sale.

The buyer contended that the contract was for a transfer of the freehold of the whole of the property, subject only to the existing shop lease and the leaseback of the first floor flat. The effect of this would be that the buyer would obtain a "windfall" of the ground floor flat.

The court had to decide on the correct interpretation of the contract.

The High Court rejected both sides' proposed constructions of the contract. Instead, it ruled that the contract should be construed as requiring the transfer of the whole of the freehold, subject to the shop lease and a 125 year leaseback of each of the first floor and ground floor flats; a solution which neither party had contended for. The buyer appealed to the Court of Appeal.

The High Court had rejected the flying freehold argument on the ground that flying freeholds are very unusual, and no reasonable observer would have thought that that was what the contracting parties intended. The Court of Appeal agreed with this, finding that an intention to sell part only of the freehold would have been clearly highlighted in the auction catalogue.

That only left the buyer's construction (that the contract included the ground floor flat with vacant possession) or that of the High Court (that the contract was subject to a leaseback of both flats). The Court of Appeal noted that the buyer's interpretation did not involve any interference with the language of the document. The High Court's interpretation, on the other hand, involved subjecting the sale to an encumbrance which was not mentioned anywhere in the documentation.

The High Court judge had relied on Chartbrook Ltd v Persimmon Homes Ltd, in which it was held that, where a mistake has been made in a document, there is no limit to the amount of "red ink" or verbal rearrangement or correction which the court is allowed.

The Court of Appeal ruled that this was not a case, unlike Chartbrook, in which the wording used by the parties, on one construction, leads to arbitrary and irrational results. The wording of the contract was clear and, if given its ordinary meaning, was perfectly workable. It may not have resulted in a good bargain for one of the parties, but that was not a sufficient reason for finding that the contract did not mean what it said.

The Court of Appeal was influenced by the fact that this was a sale at auction. It did not involve an agreement which had been negotiated between two parties. Instead, at an auction sale it is up to the seller to decide what to sell and on what terms. The buyer decides how much to bid based on what is offered.

If there had been a misdescription of the property, this could only be corrected by construction if, objectively, it was clear what property the seller intended to offer and the bidder understood the offer on that basis.

These requirements were not satisfied in this case. Objectively, it was far from clear that, even if the buyer had known of the existence of the ground floor flat, he would have known that the seller intended the sale to be subject to a leaseback of that flat. There was no evidence to show by how much the reserve price in the catalogue was below market value, if vacant possession of the ground floor flat was included in the sale. A buyer might have thought that there was a low reserve because the sellers were executors, who wanted a quick sale.

Things to consider

Both sellers and buyers should always inspect property before agreeing to sell/purchase. An inspection can reveal issues over boundaries and the existence of third party rights, as well as the physical condition of the property.