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27th January 2016

A Developer's Nightmare

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A local search is an important part of the due diligence process prior to the purchase or lease of land and or buildings. The search comprises enquiries in two parts both made of the local authority. The first part on form CON 29R seeks to establish whether there are any matters registered against the property that affect it. Examples include planning enforcement notices and tree preservation orders. The second part on Form CON 29 R raises specific queries of the various departments as to whether they are aware of anything not necessarily registered as a local land charge that might affect the property or its surroundings.

What happens where a local authority fails to give an accurate answer and as a result the buyer suffers loss? The High Court had to consider the point in Chesterton Commercial (Oxon )Ltd v Oxfordshire County Council ( 2015) EWHC 2020. In that case, a family run development company instructed its solicitors to act on its purchase of 94 and 96 Bell Street Henley upon Thames and 2A Bell Lane together with land for car parking. The developer’s intention was to renovate the properties and sell 94 and 96 with two car parking spaces each.

The local authority has a statutory duty under section 36 Highways Act 1980 to keep a list of the streets within their area that are highways maintainable at public expense. This list must be regularly updated. The local authority had in fact been investigating whether part of the land to be purchased by the company was in fact public land but this fact was not disclosed to the company’s solicitors who relied on the result of the search to the effect that none of the land to be purchased was highway and maintainable at public expense. The developer therefore went ahead and bought the land in 2007 in reliance upon that response.

In April 2009 the developer exchanged contracts in relation to the sale of 96 Bell Street and was in negotiations regarding the sale of 94 when it became aware of the local authority’s investigations via a prospective purchaser. As a result the sale of both properties went ahead at a reduced price. The developer company therefore sought to recover the difference in the price paid for the properties in 2007 and their true value taking account of the fact that land fronting the properties was in fact public highway as well as other losses.

The developer succeeded in recovering £240,000 representing the loss in value between the price paid and the true value of the land in 2007 and £150,000 of additional professional fees on the basis that the local authority had breached the duty of care that it owed the developer and was also liable in negligent misstatement. It did not however have to compensate the developer for loss of development profit as the local authority was unaware that it intended to develop.

This case underlines the need to carry out a local search to obtain its protection in the event of a problem and also to ensure when submitting the local search that any intention to redevelop is notified to the local authority.

If you have any queries on this case, our Property Dispute Resolution team will be happy to advise you. Please contact robertmclellan@hewitsons.com or lucindabrown@hewitsons.com in the first instance.