Landlord and Tenant articles

Let the seller beware!

by Kirsten Ladebeck, Solicitor

Although the old "caveat emptor" law still remains unchanged so far as the buyer is concerned, when your offer to buy a house or property has been accepted, the sellers have to ensure that all of the information they provide to you is correct. Similarly, when selling a house or property the solicitor will ask you to accurately complete, amongst other things, a Seller's Property Information Form (SPIF). The seller should also verify that all the information provided by the seller's agent is accurate.

Recent case law has shown that sellers who do not provide accurate information can be ordered to pay damages or to compensate the buyers for any consequential losses resulting from incorrect information given by the seller or anyone acting on the seller's behalf.

Incorrect Information

Incorrect information or misrepresentation made by the seller can be in the form of incorrect facts that the buyer may come to rely on when entering into the contract to purchase a house or property. In some cases misrepresentation can also result from an innocent remark made by a seller when the proposed buyers come to inspect the property.

A buyer who has entered into a contract as a result of a misrepresentation, which has causes loss, can either seek to have the contract rescinded and to place the parties back into the position which they would have been in before they entered the contract (this can be difficult due to permanently fluctuating property prices), or a misled buyer may claim damages. It is important to remember that the amount of damages awarded is at the discretion of the Courts and that it is not always practical or financially viable to rescind property contracts.

To illustrate the type of misrepresentation encountered in recent case law and their consequences please see set out below two cases:

McMeekin v Long (2003) 29E.G 120

Here the sellers were asked: "Do you know of any disputes about this or any other property?".

The sellers replied: "No", when in fact there had been a dispute about parking arrangements on the access road of the property and rubbish had been dumped to cause offence and caravans parked obstructively by neighbours. Months after the purchase of the property completed these disputes came to light. The buyers claimed damages for fraudulent misrepresentation. They successfully argued that they would not have purchased the property had they known about the disputes. The sellers paid £60,000 in damages and legal costs to the buyers.

Morris v Jones (2002) EWCA Civ 1790

Here the buyer asked whether there was any damp at the property. The seller replied: "Other than the works covered by the guarantee.. none to the Vendors knowledge but caveat emptor must apply and the purchasers should rely entirely on their own inspection and survey."

Consequently the buyer carried out his own damp surveys which revealed various problems relating to damp in the property. Nevertheless, it was later revealed that the seller was in fact aware of some serious damp problems and despite the buyer having carried out his own surveys in this regard the seller was found liable to pay the buyer damages and legal costs for fraudulently misrepresenting the full extent of the damp.

Practical Tips

• A seller should try to reveal as much as possible about his property to a potential buyer in writing and if in doubt replies should in the first instance be discussed with the solicitor acting for the seller.

• A seller should remember that an incorrect representation could only have negative consequences if the other party entered into a contract in reliance on it. A seller should therefore try and correct any incorrect representations before a contract is entered in to.

• The special conditions in the contract prepared by the seller's solicitor may assist but beware of the Unfair Contract Terms Act.

• Disclaimers used by sellers in giving replies may not always be effective, as was demonstrated in the case, of Morris v Jones.

• The seller may be a large entity and the 'knowledge' of certain facts may in the 'entity's knowledge', yet not within that of the individuals involved. This increases the risk of inadvertent misrepresentations. To avoid this when replying to the buyer's queries, the answers should reveal who is giving the reply and what position within the entity this person holds. It should also state which records have been examined in preparing the answers and whether all answers provided as a whole are consistent with each other.

If the buyer who has decided to make all the enquiries necessary to enable him to decide whether he wants to buy the property or not. In doing so he relies partly on the answers given by a seller. This enquiry process is supposed to be possible without legal training. Consequently, hiding behind lack of knowledge in not possible. Recent case law has demonstrated that full and frank replies to questions by the buyers may be awkward in view of wanting to "sell quickly". However, the long term effect of making misrepresentations should outweigh honest disclosure right from the start.

This brief summary should not be applied to any particular set of facts without seeking legal advice.

If you would like further information on any of the aspects covered in this article, please speak to your usual Charsley Harrison contact, or alternatively contact our Ascot partner Mary Simpson on 01344 627 627.

Web site: http://www.charsleyharrison.com/