More misrepresentation problems

More misrepresentation problems

Padstow in Cornwall is well known as being the home of Chef Rick Stein’s restaurant empire. It is perhaps better known in legal circles as being the location of the Atlantic Bays Holiday Park. This Park, and its owners Mr and Mrs Francis, have figured heavily in service charge litigation in recent years, including the important Court of Appeal decision in Phillips v Francis which involved what constitutes qualifying works for the purposes of a consultation under section 20 of the Landlord & Tenant Act 1985. The on-going litigation has now provided us with a few reminders as to how difficult it is to bring a successful case based on misrepresentation.

As we saw last month, the basic cause of action for an incorrect reply to one of the questions on the Property Information Form or other pre-contract enquiry is an action for misrepresentation. A misrepresentation is an untrue statement made by one contracting party which is relied upon by the other, which induces him/her to enter into the contract, and as a result of which he/she suffers loss.

Francis v Knapper [2016] EWHC 3093 (QB)

This case concerned Mr and Mrs Francis’s purchase of the holiday park in 2008 for £1.35 million. Although this was a purchase of commercial property it still holds lessons for residential conveyancers.

After purchase, the buyers discovered that the amenity block at the park had significant damp and rot within the roof and that the sewerage system at the park needed an expensive upgrade. The buyers had not commissioned a survey…

The buyer’s solicitor had raised Commercial Property Standard Enquiries (the CPSEs) and replies were obtained by the seller’s solicitor from the managing director of the seller company prior to exchange. The reply given to enquiries that asked whether there were any defective conduits or fixtures or items requiring significant expenditure over the next three years was an emphatic ‘No’.

The buyers alleged that this answer was incorrect and that they had been induced to enter into the contract to buy the park on the basis of misrepresentations. As the seller company was insolvent, they brought a claim against the seller’s solicitor, his firm, and the managing director of the seller.

The judge held that the replies given to the enquiries were indeed incorrect.

However, the buyer’s claim for damages against the seller’s managing director failed because the buyers could not prove that they had relied on the replies. In fact, the judge found that the buyers had not even read the replies. All conveyancers do need to ensure that buyers are sent copies of all pre-contract enquiries – and told to study them – before exchange.

The negligence claim against the seller’s solicitor failed on the basis that the CPSEs included an express disclaimer of liability on the part of the seller’s solicitor. This is not something normally found in a residential transaction; the Property Information Form contains no such disclaimer – but it is obviously something that residential conveyancers should consider carefully.

Even without this, the judge was of the opinion that the claim against the solicitors would have failed because of the normal rule that the seller’s solicitors owed no duty of care to the buyer (as held in Gran Gelato v Richcliff (Group) Ltd [1992] Ch 560)). The buyers had claimed that there was a liability here because the solicitor was himself a member of the seller company and knew of all the problems with the park. On the facts, the judge held he did not know of the problems and the normal rule should apply.

In any event, the buyers failed to prove they had suffered any loss; they had bought for £1.35 million, but an expert valuer placed the value of the site at the time of purchase at £1.4 million.

Important points here for sellers and buyers to be aware of. For a seller it is always best to ensure that answers are correct; for a buyer, do ensure that the replies are relied upon and that loss has been suffered.

Paul Butt

Paul Butt is a retired consultant at Rowlinsons Solicitors.

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