Truth, the whole truth and nothing but the truth

28 July 2017

We all know how lawyers love a bit of Latin jargon and most conveyancers can manage to remember the phrase caveat emptor (literally ‘buyer beware’). Unfortunately some sellers (and their advisors) believe that the phrase means that they can take a devil may care attitude to providing information to the buyer to enable them to make an informed decision about the proposed transaction. In fact, this is not the case and if a seller ‘misrepresents’ something about the property, then this may entitle the buyer to seek damages or indeed undo the deal after the fact, which can be an expensive and inconvenient process for all involved. So a few minutes understanding what constitutes a misrepresentation and how you might avoid making them, can be time well spent.

Is every misrepresentation actionable?

Not necessarily. However, in order to know whether or not it is actionable that requires understanding of what one actually is. There are essentially four elements. The first is that there is a material statement of fact (as opposed to an opinion). Secondly the statement of fact must in some way induce the buyer to enter into the contract. Thirdly the statement itself must be false or inaccurate. Finally the buyer must in some way place an element of reliance on that statement (so that a statement which the seller knows to be untrue will not necessarily give rise to the same claims for a misrepresentation).

What about exclusion clauses?

Another device much favoured by sellers’ lawyers is to try and protect the seller from claims of misrepresentation by filling the contract with exclusion and limitation clauses which prevent the buyer from being able to rely on any statements which have been made. Do they work? Perhaps the simplest answer to that question is ‘to a point’. It is possible to limit the seller’s exposure to claims for making statements to an extent. However, the clauses which have been upheld are those which relate to the seller making (or allegations that it has made statements) outside of the formal process of enquiries being raised by the buyer’s lawyers of the seller’s lawyers. The court will exclude these ’representations’ where they are made outside of the strict formalities of contract negotiation. However, the purpose of raising specific pre-contract enquiries of the seller (via its lawyers) is precisely to elicit information about the property which might be relevant to the buyer's decision to proceed. For that reason it would make nonsense of the conveyancing process if the seller’s conveyancers were able to exclude all liability for a misrepresentation simply because they had put a clause in the contract to that effect.

The continuing duty to disclose facts

It is also worth bearing in mind that the seller’s obligation to represent facts about the property is a continuing duty. It is not simply the case that they can reply to pre-contract enquiries and that is an end of matters. Another recent case1 illustrates the point rather neatly. In this case the seller was asked a question about whether or not it knew of any problems relating to asbestos affecting the sale property. At the time of giving their replies it had no knowledge of any relevant matters and gave a reply to that effect. However, shortly prior to entering into the proposed lease transaction it received a report on the property indicating that the surveyors had a suspicion of the presence of asbestos within part of the building and that as no adequate asbestos survey had been carried out, that their contractors would not enter the premises at that point. The seller landlord failed to disclose this fact to the buyer/tenant who subsequently became aware of a significant asbestos problem with the buildings when its appointed contractors entered the site to carry out proposed alterations. In the end, the tenant was out of possession of the property for a number of months whilst substantial remedial works were carried out, necessitating the tenant having to find alternative premises at short notice. It successfully claimed for all of these additional costs as well as the costs of carrying out the decontamination works themselves, with the cost to the landlord of somewhere in the order of £1.2m.

What if I say nothing at all?

You might conclude from the previous paragraphs that perhaps silence is indeed golden and that it is better to say nothing at all than to say something which turns out to be incorrect. Nevertheless, the courts have equally taken the view that it is as possible for a seller to mislead by omission as by commission. Choosing to deliberately not answer questions or to not provide information in circumstances where a party does have relevant knowledge of an issue is just as likely to be treated as a misrepresentation as making an outright factual statement which is incorrect. Furthermore, any well advised buyer is likely to walk away from the deal entirely if it feels that the seller is withholding relevant information.

Alternatively, a well-funded buyer may well fancy chancing their arm going after an evasive seller, given that a refusal to answer a question about something on which the seller is much better placed than the buyer to have actual knowledge, is a difficult position to defend.

So perhaps in matters of conveyancing, honesty may be the best policy. At the very least, a bit of ‘caveat venditor’ is sensible.

The content of this article is for general information only. For further information please contact a member of Birketts' Property Litigation Team. Law covered as at July 2017.

This article is from the July issue of Room with a View, our newsletter aimed at professionals within the property industry. To download the latest issue, please visit the newsletter section of our website

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1 First Tower Trustees Limited v. CDS (Superstores International) Limited [2017] EWHC 891 (Ch)