In defence of Caveat Emptor

Introduction

Interactions between lawyers and non-lawyers on social media indicate a clear divide concerning the principle of “caveat emptor” or “let the buyer beware.” Many non-lawyers consider caveat emptor to be antiquated and advocate, in effect, that the principle be reversed to “caveat venditor,” or “let the seller beware.” This is particularly evident in the context of material information, though not exclusively.

Clarification

Though still an important principle in conveyancing, caveat emptor is not an absolute rule. Notwithstanding the Consumer Protection from Unfair Trading Regulations (CPRs), sellers have always had some limited duties of disclosure prescribed by law. Moreover, the existence of the Protocol forms, in particular forms TA6 and TA7, also represent a notable departure. Whilst the Protocol forms are not strictly a legal requirement, in practice there are very few situations in which it would be reasonable for a seller to refuse to provide the same.

In effect, the conveyancing profession has therefore of its own volition accepted that some departure from caveat emptor is desirable.

Misconceptions

Perhaps where the confusion begins is in the meaning of the principle  “let the buyer beware.” I believe there are often misconceptions on the part of those who criticise caveat emptor, for example:

• The principle does not mean that the seller can refuse to provide any information about the property and that the buyer has no recourse.

• Many criticisms of the principle seem to be founded on the mistaken belief that the seller is in a dominant bargaining position to the buyer, when this is often not the case. Indeed, often the reverse is true.

• Many criticisms appear ignorant of the legal and practical implications of prescribing such a high level of due diligence.

These points will now be discussed in further detail:

Misconception #1

Caveat emptor is in practical terms a starting point, from which the parties are free to depart, subject to negotiation.

For example: hypothetically, a buyer may indicate to the seller that he will not exchange contracts without an unequivocal warranty from the seller that the property is structurally sound. The seller’s solicitor would inevitably advise the seller not to give such a warranty, and it would be highly unusual in practice. However, there is nothing to prevent the seller from giving such a warranty in favour of the buyer under the current system if that is what the parties agree.

The elephant in the room is that the buyer has the benefit of the ultimate remedy: to walk away from the deal at any point prior to exchange of contracts. And whilst critics might say that it is unfair that the buyer has potentially incurred search and survey costs etc before finding out that the property is unsuitable, the parties were free to negotiate alternative arrangements at any point.

There is nothing under the current system to prevent a buyer from negotiating that the seller provides him with whatever information he deems appropriate. The fact that this is atypical in practice merely highlights that buyers are willing  to take this risk. Many critics of the current system are simply dissatisfied with the choices that many buyers make and believe that they should be able to mandate buyers’ choices .

It is at this point perhaps worth remembering, that ‘SSTC’ (sold subject to contract) has no legal significance. The buyer has not purchased the property, he has offered to do so subject to due diligence etc. This is how a sale by private treaty works, and if those terms do not resonate well with the buyer, he may instead buy at auction or otherwise should the terms of a sale by private treaty be unacceptable to him.

Misconception #2

Perhaps the main reason why CPRs do not apply ‘neatly’ to conveyancing transactions is because they assume, as is often the case in a non-conveyancing context, that the seller is a ‘trader’, and the buyer is a ‘consumer’. This is significantly less common in conveyancing than elsewhere. Trader to consumer sales do of course happen, but most transactions are consumer to consumer, and many are consumer to trader.

Therefore, applying the CPRs to every conveyancing transaction creates a situation whereby traders will sometimes benefit from consumer protections at the expense of consumers. For example, if a consumer seller is obliged to provide information to a trader purchaser at the seller’s own expense, or the seller inadvertently creates a misrepresentation risk (MR) by ‘over-disclosing’ above  what is strictly required by law, creating a potential action for MR against the consumer by the trader that would not otherwise have arisen.

Non-lawyers may scoff at the previous point and so deem it a stretch of the imagination, but many lawyers will tell you from practical experience, that ‘lay’ people will often misunderstand questions, make errors, or forget things, innocently. Many people who are selling their homes are under considerable pressure and therefore are prone to make errors. Look at for example the number of sellers who misunderstand section 2 of the TA10. The greater burden of disclosure you impose on such people, the greater their potential legal liability to the buyer.

Misconception #3

The Home Buying and Selling Council suggest that their members have identified 300 pieces of information, which in their view is desirable for buyers to be provided at the point of offer. The Material Information Guidance produced by National Trading Standards  Estates and Lettings is also extensive, but states that it is not exhaustive.

However, the conveyancing process from the buyer’s side is largely about balancing due diligence with expediency and cost. Each buyer will have a different view as to what level of diligence is appropriate given the time and cost implications. Case in point, according to RICS only a quarter of buyers choose to instruct an independent survey. Therefore, three quarters of buyers decide to forego this (in my view) critical step to obtain vital information concerning the condition of a property in favour of saving costs and/or time.

It follows that prescribing information that the seller must provide to the buyer means that many buyers will be provided with information which they did not want, or at the very least, were not willing to pay for. It is naïve to suggest that sellers will pay for this information without passing at least part of the costs on to buyers, either directly or indirectly.

Practical points

In my view it is impractical for buyers to be provided with every piece of information that they could possibly want to know in respect of a property they are purchasing. This is simply unworkable. Buyers need to decide what information is important to them personally on a case-by-case basis, with the assistance of their professional advisors, and considering also the important factors of cost and expediency.

Even if the above were possible however, such data would inevitably be so substantial as to render it worthless, and the costs of obtaining advice on this data would be prohibitive. Lawyers will tell you that most clients do not read their reports, which are often only a few pages long. How many clients would bother to read hundreds of pages?

Examples

Many critics point to certain examples of buyers being exploited as examples of why caveat emptor is not fit for purpose. The examples I often see cited are closely related: the ground rent scandal and the cladding scandal. Ironically both examples concern the sale of new build properties, which arguably are a ‘good’ example of up front information in practice. The buyer’s solicitor often being ‘data-dumped’ from the outset of the transaction.

In respect of ground rent, it is virtually certain in my view that the ground rent provisions would have been highlighted to the purchasers. The main reasons why purchasers were not deterred are in my view likely to be:-

• Inadequate advice by the conveyancer on the implications of the provisions.
• Buyers being overloaded with information to such an extent that they cannot comprehend all of it. This goes hand in hand with the tight deadlines often imposed by developers.
• Buyers simply not reading their reports, as unfortunately many do not.

These examples are therefore not instances of caveat emptor failing, they are instead indicative of other problems, such as the unethical business practices of developers and their ‘pet’ conveyancers or perhaps the ‘swamping’ buyers with information to such an extent,  that the pertinent points become diluted or obscured.

In any case, sales of new build properties will almost always be trader to consumer and therefore will be covered by the CPRs. It could be argued that the solution therefore should be to strengthen existing consumer protection laws, or for them to actually be enforced, or for the government to specifically target nefarious developers, rather than attempt to drastically alter the conveyancing process.

Conclusion

Caveat emptor is not an absolute rule, but instead a general principle, which acts as a starting point or foundation for conveyancing transactions. The purchase of a property is a financial investment, and unfortunately no investment can be entirely free from risk.

Caveat emptor offers freedom to the parties to conduct the transaction as is most suitable to them, rather than a protectionist approach, prescribing steps which may be unnecessary. Moreover, the conveyancing process is built upon the foundation of caveat emptor, and one cannot expect to flip that foundation on its head and expect that which is built on top of it to be better off for it. This is merely a delusion of those who are naïve about the conveyancing process.

In the article I have argued that it is impractical for a buyer to be provided with every bit of information that may be relevant to their transaction. ‘Law tech’ providers will likely differ. However, this is because unlike conveyancers, surveyors and perhaps even estate agents to a limited extent, law tech providers are unlikely to be held liable for any inaccurate information and can therefore provide data haphazardly with little or no concern  for the accuracy or usefulness of that data (see: Home Information Packs).                       

In other words, the long-established legal principle of caveat emptor offers flexibility, precision, efficiency, and relevant information provided concisely by appropriate experts. Caveat venditor offers instead inefficiency, expense, MR, and excessive unreliable information churned out by computers.

No part of this article was written or enhanced by AI.