A recent High Court case highlights the importance of vendor vigilance as regards the wording of the planning warranty in the Law Society standard form property sale contract, particularly in circumstances where a clean bill of health on planning cannot be warranted.

The Law Society standard form contract for sale includes as a general condition a far-reaching planning warranty, which can be amended or deleted as appropriate. Unless amended, the vendor warrants that there has been no development of the property since 1 October 1964 which would have required planning permission, and that all planning permissions and building bye-law approvals required for any development have been obtained and complied with substantially. The effect of the condition is to reverse the “buyer beware” principle which required a purchaser to check out the planning situation.

The High Court recently held that a breach of the planning warranty in a contract for sale entitled the purchaser to recover damages equivalent to the difference in value between what was paid for the property and what it would have been worth on the date of purchase had the true facts in relation to planning been known. Although damages were ultimately awarded under a separate heading, damages for breach of the warranty were assessed at €5.5 million.

The case involved the sale of a quarry with the benefit of the Law Society standard planning warranty, which had not been amended. The court found that the property had not in fact been operated as a quarry before 1 October 1964 (meaning it was not eligible to benefit from certain “grandfathering” provisions under the Planning Acts) and that therefore planning permission should have been obtained. Accordingly, as there was no planning permission for use as a quarry, the vendor’s warranty in its unamended and standard form, was false.

Care should be taken by vendors to ensure they are in a position to back up the extensive planning warranty, or that the standard warranty is amended or deleted as appropriate. Further, in the event of a purchaser discovering a breach of the warranty after the contracts for sale have been exchanged but before completion of the sale, a vendor could find himself exposed to an action for rescission of the contract and return of the deposit. In such circumstances, it is very difficult to compel a purchaser to complete the sale.

Contributed by Tara Rush.

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