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Acceptance or warrandice?

16 June 14

Does the inclusion of a clause granting absolute warrandice in a disposition of commercial property risk a claim by a vendor client for failing to follow instructions?

by Denis J Garrity

Conveyancers normally take great care to ensure that missives and transactional documentation reflect instructions received, whether in relation to deal terms or more technical matters such as title issues. This short article questions whether the general practice of including the grant of absolute warrandice in dispositions of commercial property is a breach of the vendor’s solicitor's instructions.

Missives for commercial properties will normally include a clause providing for “acceptance of title” by the purchaser. Generally speaking, the onus is on the purchaser’s solicitor to examine title and advise the client of any problems. The examination occurs either before concluding missives, or prior to purification of any relevant suspensive condition. The underlying point is that one party, generally the purchaser, is taking responsibility for ensuring that the title to be transferred meets their requirements. Commercial clients, in this context, readily understand the allocation of risk in respect of any gap or defect in title.

It would seem obvious to reflect that agreement throughout the conveyancing documentation. The question that arises, therefore, is this: why do solicitors acting for vendors, as a matter of general practice, allow their clients to grant unqualified warrandice?

Conflict of terms

Warrandice is well known to conveyancers. In the context of a conveyance of land, absolute (or unqualified) warrandice provides a guarantee by the vendor that there shall be no “eviction” of the purchaser from the land conveyed by a party with a better title: Brownlie v Miller (1880) 7R (HL) 66. Absolute warrandice in the disposition, therefore, appears to override the allocation of risk of a title defect provided for in the missives.

How many vendor clients are advised that they are granting the purchaser a title guarantee, potentially resulting in a financial claim against them? Bearing in mind the care taken over the missives to record the purchaser’s satisfaction with title (presumably explained to both parties at the time), permitting the vendor to sign a disposition containing the grant of absolute warrandice would appear to breach instructions that the purchaser is the party bearing the risk of any defect. (An “acceptance of title” clause may also conflict with standard clauses obliging the vendor to deliver all deeds/documents necessary for the Keeper to deliver a land certificate without exclusion of indemnity.)

Halliday (Conveyancing Law and Practice (2nd ed), paras 4-31 to 4-40, 30-96 and 37-15) explains certain circumstances in which warrandice might be qualified, but makes no suggestion that the clause be qualified by reference to an acceptance of title. Gretton and Reid (Conveyancing (4th ed), para 19-09) state: “Sometimes absolute warrandice is granted unthinkingly even if the missives provide that title is to be taken as it stands”, but do not discuss the almost universal practice of granting absolute warrandice without reference to the terms of the underlying contract.

Claim situations

However, qualification of warrandice by reference to the missives was recognised, and indeed recommended, some time ago in Burns’ Conveyancing Practice. Burns posed the question as follows (4th ed, 345): “When the contract contains restrictive clauses, e.g., barring objections to extent, boundaries, and title, is the seller entitled to qualify the clause of absolute warrandice?”

Burns then considers, very briefly, Young v McKellar 1909 SC 1340. It held that an acceptance of title clause in articles of roup could still be founded on by the vendor against the other party to the articles of roup, notwithstanding the grant of absolute warrandice in the subsequent disposition (as undertaken in those articles). Burns, however, highlighted two potential pitfalls to the vendor that remain relevant today, namely (1) the potential enforcement of warrandice against the vendor by successors in title to the purchaser; and (2) the fact that missives, and any contractual qualification to warrandice contained in them, may fall or be superseded.

Taking these factors into account, Burns concludes: “For these reasons it is thought that the seller is entitled to repeat the restrictive clause in the disposition, which is only an exact carrying out of the contract. If it is to be done it should be done at length and not by reference to the contract.”

Whilst claims for breach of warrandice are rare, Morris v Rae 2013 SC (SC) 106 is recent evidence that they do occur. The value of the original claim in Morris was relatively small (approximately £70,000). Analysis of the case has focused on the circumstances in which a claim for breach of warrandice can arise, and not the interaction between the missives and subsequent disposition (Gretton and Reid, Conveyancing 2012, 125). The latter point may come into sharper focus, however, were a significant financial claim to arise from a breach of warrandice in a transaction involving commercial property. If the vendor was told that the purchaser had “accepted” the title as part of the negotiation of the missives, what explanation is given to that same client as to why they have, by virtue of “And I grant warrandice” in the disposition, offered a guarantee to the purchaser in respect of that title?

One of the primary duties of a solicitor, as agent of the client, is to follow instructions. Irrespective of the widespread practice of including the grant of absolute warrandice in dispositions, doing so after concluding missives in which the purchaser has accepted title is, it is submitted, a direct failure to follow instructions as to allocation of risk. This opens the solicitor to a claim by a vendor client, in the event of a claim for breach of warrandice.

There is a complex relationship between the duty to follow instructions and the general duties of a professional to take/exercise reasonable care. (The topic is outwith the scope of this article, but see Platform Funding Limited v Bank of Scotland plc [2008] EWCA Civ 930.) It is submitted, however, that, in the circumstances described above, the defence of “standard practice” would not be available where the solicitor failed to implement in a disposition clear instructions from his client that had already been documented in the underlying missives.

Denis Garrity is an advocate with Terra Firma Chambers

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