Morris v Rae: Let the Buyer beware? Let the Seller beware, too

It would appear that caveat emptor (buyer beware) is being joined by caveat venditor (seller beware) in the dictionary of Scottish legal maxims for Real Estate. The Supreme Court has recently ruled on a case involving a claim for breach of warrandice. Warrandice is an aspect of Scottish property law which amounts to a personal guarantee by the seller that he/she has absolute title to the property being sold. This means that purchasers have a remedy against the seller if they are evicted, or at least threatened with eviction, by the true title holder. However the court held that there are circumstances where claims for breach may be brought even where the party threatening eviction has no title to the land in question. The full details of the case can be read here.

Facts of the Case

In 2004 Anna Maria Rae (AMR) sold land for £140,000 to Ransom Developments Limited (Ransom). The disposition by AMR to Ransom included the words “I grant warrandice”. These words warrant the seller’s absolute title to the property being sold, with the result that any identifiable problem with the title at a later date would allow Ransom (in the event of Ransom’s eviction) to pursue AMR for damages.

Ransom developed the land and attempted to register its title for the land with the Registers of Scotland. The Keeper of the Registers informed Ransom that AMR did not have title to all of the land that had been sold, and that part of the plot belonged to a company called James Craig Limited (JCL). To complicate matters, it later transpired that JCL also did not hold title to the disputed land (allegedly unbeknownst to it), and had in fact inadvertently transferred it to John Stevenson Lynch in 1991.

In 2005, JCL threatened to evict Ransom from the land, unless Ransom paid a fee of £70,000 – Ransom paid this fee. JCL also secured the transfer of title to the disputed land from Mr Lynch, which in turn was transferred to Ransom. In 2007, Ransom went into administration, and assigned its rights to Robert Morris who then began legal proceedings against AMR for breach of warrandice, in terms of which Mr Morris sought to recover the cost of acquiring title to the disputed area of land. The seller of the land defended these proceedings on the basis that the threat of eviction was made by a party (JCL) who did not in fact have a registered title to the land at the time the threat was made.

The issue came before the Court of first instance on the seller’s motion to have the case dismissed (struck out) as irrelevant at law. The judge at first instance refused this approach, however, the Scottish appeal court dismissed the action on the basis that JCL did not have good title at the time the threat of eviction was made – Mr Morris appealed to the Supreme Court.

The issue before the court was what is necessary to constitute a threat of eviction and therefore trigger a seller’s right to a remedy for breach of warrandice?

The Issue for the Court

The Supreme Court had to address whether Mr Morris was entitled to sue for breach of warrandice for Ransom having been threatened with eviction by JCL, when in actual fact JCL did not hold title to that area of the land. The first part of the question was whether the party making the threat of eviction (JCL) has to have unquestionable title to the land, or whether it is enough that both parties believe that JCL holds title to this land.

The court held that the threat of eviction would be constituted if JCL was in a position to compel the party who owned the disputed land (John Stevenson Lynch) to transfer the land to JCL (i.e. when JCL had a personal right to the property albeit they had yet to register it). This part of the decision was on the basis that there may be other scenarios where an interest in land has yet to be registered, yet the power to evict must reside with the soon-to-be heritable proprietor.

Furthermore, the Supreme Court held unanimously that, in principle, a threat of eviction could be established (and the right to the remedy triggered) if Ransom and JCL reasonably believed that the threat of eviction was real (in that it “inferred a distress”). The matter will now be remitted back to the Scottish Courts for an evidential hearing on the facts.

A Cautionary Tale

The clear message from this decision is that the old buyer’s edict caveat emptor holds equally true for the seller of a heritable property. If Mr Morris is successful in his claim against AMR, then she could stand to pay substantial damages to Mr Morris. For the seller – make sure you own and hold title to everything you sell, for the buyer – make sure the seller has title to everything they purport to sell, and obtain warrandice from the seller.

Co-contributor: Fraser Muego
fraser.muego@cms-cmck.com
Tel: +44(0)131 220 8997