James is a Partner and Head of the Dispute Resolution team and primarily handles commercial…View Profile View all
The High Court has recently awarded damages to a buyer as a result of fraudulent misrepresentations made by a seller in pre-contract enquiries. Those enquiries are made in both residential and commercial property transactions and there is an obligation on the seller to update replies to enquiries if the answers change at any point up to exchange of contract.
In this particular case, the seller had a commercial property which was largely let to one tenant. The lease provided for a service charge and during the course of 2013 the tenant withheld part of the service charge it was due to pay and instructed lawyers to represent it in a claim against the seller over the service charge.
Before that dispute had started, the seller, in anticipation of disposing of the property, had prepared replies to the standard pre-contract enquiries. Five months later, those replies were issued to the buyer. The replies were incorrect in that they said that there were no disputes relating to the property albeit a tenant had raised “mainly historical issues and had recently raised further enquiries”. Questions were raised by the buyer but the seller did not answer them. Contracts were exchanged in September 2013. At that stage, the buyer was looking for funding and the bank’s valuers discovered the service charge dispute and advised the bank that the dispute ought to be resolved before the purchase could complete. The buyer rescinded the contract and claimed the return of its deposit and also damages arising from the fraudulent misrepresentation of the seller. When the case came before the court, the Judge decided that the seller had fraudulently misrepresented the situation, or had been reckless as to whether the information which it gave was correct, and the buyer succeeded. In addition to getting its deposit back, the buyer recovered £395,948 damages for deceit. Those damages were for the costs relating to the purchase incurred by the buyer which had been wasted as a consequence of the misrepresentation.
This case highlights the fact that it is important for sellers to spend time ensuring that the information that they give to their solicitors when answering pre-contract enquires is correct not only at the time they prepare the replies but during the course of the transaction. Also, if clarification of replies to enquiries is sought, it should be provided.
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