Following on from our blog “My Seller Lied to Me!”, we thought we would set out some examples of real cases of claims for
misrepresentation
that have been decided on by the Courts.

A recap of the position – what is misrepresentation?

A contract to purchase a property is no different to any other contract. If one party to a contract says something which isn’t factually accurate and the other party relies on that statement when entering the contract, this can give rise to a claim for misrepresentation.

If someone suffers a financial loss as a result of the reliance that they have placed on a representation which is false, then the aggrieved party can normally claim damages to compensate them for this.

In some cases it is possible to rescind the contract. Rescission means putting the parties in the position that they would have been in had the contract not been entered into, effectively “reversing” the transaction completely.

Misrepresentation in property transactions

IIf the seller of a property makes a false statement of fact about it and the buyer relies on this statement when deciding to proceed with the purchase, if this causes the buyer a loss, the buyer may have a misrepresentation claim against the seller.

Property transactions normally follow a well-established process. Part of this process includes the buyer asking questions about the property and the seller answering them. These questions are called pre-contract enquiries. To speed the process up, certain basic information about the property is normally given in advance by the seller, by completing a Property Information Form or TA6.

How misrepresentations happen

Property transactions normally follow a well-established process. Part of this process includes the buyer asking questions about the property and the seller answering these. These are called pre-contract enquiries.

To speed the process up, certain basic information about the property is normally given in advance by the seller, by completing a property information form.

The Law Society has published standard forms which many solicitors will use, but there is no rule to say that a bespoke form cannot be used or indeed that a seller needs to provide this at all. However, if a seller does not provide this information, a buyer may be unwilling to proceed.

The standard forms which are normally used in property transactions include the Seller’s Property Information Form (TA6 – sometimes referred to as a SPIF) and Sellers Leasehold Information Property Form (TA7 – for leasehold transactions). There are other standard forms which the Law Society have produced and may also contain information, when completed, which amount to representations.

Warnings to both the buyer and seller appear on the standard property information forms, informing the parties that the seller must answer the questions accurately because the buyer is entitled to rely on them when deciding whether or not to enter into the contract.

Whilst much of the time it is what appears in the property information form which forms the basis of a misrepresentation claim, any statement about the property which is untrue can be capable of amounting to a misrepresentation. Written (and sometimes even oral) correspondence between the parties and their solicitors can amount to misrepresentations too. It is important to consider the contractual terms, as these would normally look to exclude or limit liability for things said outside of what is recorded in the contract.

Mistakes can happen and a seller can make an “innocent misrepresentation”. Sometimes, a seller may make a “reckless misrepresentation”, saying something without caring or checking whether or not the statement is accurate. In some cases, a seller might deliberately say something which is misleading so the buyer proceeds with the transaction, which may amount to a “fraudulent misrepresentation”.

So what happens when the buyer discovers the truth? We have set out below some real cases, decided by the Courts, to give you an idea of how these cases are dealt with in practice.

What is a false statement of fact?

Historically, only a statement of fact which was false was considered a basis to bring a misrepresentation claim. An incorrect statement about the law, or a person’s opinion of something, were not considered capable of being misrepresentations.

However, in Pankhania v LB Hackney [2002], the Court established that in some cases, a statement as to the legal position can amount to a statement of fact. In that case, the buyers purchased a property on the basis that the existing occupiers were licensees and not tenants.

This was important, as it is easier to terminate a business licence than a business tenancy. The Court considered this to amount to an actionable misrepresentation, even though the inaccurate statement related to the legal position between the seller and existing occupier.

What if the seller doesn’t know?

If a seller does not know the answer to a question in the seller’s property information form, it is important that they do not speculate or suggest anything other than to explain that they do not know the answer. To suggest anything else can lead to trouble.

A primary authority on this point is William Sindall Plc v Cambridgeshire CC [1993]. In that case, the seller of a piece of land for development was asked whether or not they were aware of any rights affecting the property, other than those which could be seen on an inspection or which had not been disclosed in the contract.

The seller answered “not as far the vendor is aware”. This seemingly innocuous statement was considered by the Court to be a false statement of fact.

In fact a sewer ran underneath the land and this was not discovered until after completion. The Court confirmed that the statement “not so far as the vendor is aware” implied that the seller had taken steps to verify what they were saying was correct.

In short, the Court found that the seller had effectively said “I have checked, but can’t find anything”.

What if a buyer has not “relied” on the misrepresentation?

For a claim for misrepresentation to exist, there must be reliance on the part of the person that the representation is made to. If it does not influence the decision to enter into the contract, it cannot be a misrepresentation.

It doesn’t have to be the sole reason for entering into the contract, but it does have to be material and induce the person to enter into it, normally without making enquiries that they may otherwise have made. It generally also does not matter if someone can discover the truth if they had taken steps to do so.

In another case where the phrase “not so far as the seller is aware” was used is Clinicare Ltd v Orchard Homes Development Ltd [2004]. In that case, the prospective tenant of a commercial property asked about dry rot in the property and relied on this response from the landlord, even though the landlord advised the tenant to instruct their own surveyor, which they did.

The surveyor reported dry rot in the roof space. In fact there was also dry rot in the staircase and the surveyor suggested further enquiries about the staircase should take place. The tenant didn’t do this.

The Court held that the decision to ignore the seller’s advice to investigate the staircase further was based on the fact that the seller had said that it was unaware of any dry rot in the premises.

In Redgrave v Hurd (1881), a solicitor was advertising for a partner to join his practice and made claims which were factually untrue about the profitability of the practice.

Even though the prospective partner was given the opportunity to “discover the truth” by inspecting paperwork, and he decided not to, it was held on appeal that there had been an innocent misrepresentation.

In short, the prospective partner was reasonably entitled to rely on the statement made by the existing partner, even though had he checked, he would have realised that the practice was not as profitable as was claimed.

Does a seller have to correct a buyer’s misunderstanding of something?

Silence does not normally amount to a misrepresentation. Normally there has to be something specifically said which is factually untrue; the buyer cannot rely on a statement if it is never made.

However, sometimes allowing the other party to the contract to proceed on an obvious error or misunderstanding without correcting this can amount to a misrepresentation.

Whilst not a property misrepresentation case, the principles of National Westminster Bank Plc v Angeli Luki Katonou [2006] are still relevant. In that case a personal guarantee for a loan was given on the basis that the bank had led the borrower to believe that his company’s loans, including the one being guaranteed, would not be subject to debt collection processes.

The Court decided that the guarantee was given as a result of a negligent misrepresentation in failing to correct the guarantor’s understanding. The guarantee was rescinded and held to be unenforceable by the Court.

Can I force the seller to take the property back?

Rescission can sometimes be available as a remedy for a misrepresentation claim. However, it is what is known as an “equitable remedy” and is therefore at the Court’s discretion. The Court will not award rescission as a remedy unless damages would not adequately compensate the aggrieved party.

With property transactions it is a rare case where the contracts can effectively be reversed and the seller be forced to take the property back and refund the purchase price.

In Harsten Developments Ltd v Bleaken and Others [2012], a developer bought a site at auction and based part of the decision to so on information contained in the auction pack, which was made available to potential bidders in advance. The information provided included factually inaccurate information about the boundaries and a sewer.

The Court confirmed the position that rescission as a remedy to a misrepresentation claim is only generally available in cases of reckless or fraudulent misrepresentation.

The overall result of this case was that the Court applied its discretion under section 2(2) of the Misrepresentation Act 1967 and ordered rescission, along with damages for the other expenses.

Ross River Ltd v Cambridge City Football Club Ltd [2007] involved the sale and leaseback of a football stadium. In this particular case, the Court found that material misrepresentations had been made, and these were done with a view to influence the negotiations relating to the transaction.

As this was considered to be in the mind of the misrepresenting party, the Court considered this to be a fraudulent misrepresentation and ordered rescission of the contract.

What happens if the representation was true when it was made but is now factually inaccurate?

In some cases, a change in circumstances, rendering a previously true representation subsequently inaccurate, can give rise to a duty to update the other party.

In Spice Girls Ltd v Aprilia World Service [2002] the issue was whether or not there was effectively an implied representation that the pop group would not split up for the duration of an advertising contract.

Of course, the group did split up, which resulted in Court action being taken. The Court determined that there was a duty to correct the misunderstanding when it became clear that this was going to happen.

In the case of FoodCo UK LLP v Henry Boot Developments Ltd [2010] this principle was considered in the context of property.

It involved a motorway service station and a proposed development to the local area which would have increased the number of customers to the site. This development did not go ahead.

The Court decided that unless the representing party knew that the previous representations had become false, or did not care whether or not they had, there was no duty to correct the previous representation.

When buying and selling property, caution should be exercised if a seller becomes aware of a change of circumstances. It is generally best to correct any representations which subsequently become untrue as a result of a change of circumstances.

It’s my solicitor’s fault!

It is important to also understand that when a solicitor, giving or receiving information on behalf of their client, their client will be deemed to have that information.

In Strover v Harrington [1988] a property which did not have mains drainage was described as agents and then the valuer as having so. In fact, the seller had given the correct information to the buyer’s solicitor who had failed to pass this on to the buyer client.

It was held that the reason for the loss to the buyer was not as a result of the misrepresentation but because the buyer’s solicitor had not passed the correct information on. In such a case, the solicitor would potentially be liable for a claim for professional negligence.

The converse is also true.

In Cemp Properties (UK) Ltd v Dentsply [1989], the seller’s solicitor stated that certain documentation was not available when in fact it was. Had those documents been supplied to the seller, the seller would have discovered a number of problems with the property.

The buyer was successful in their claim against the seller and no doubt, the seller pursued a claim against their solicitor for professional negligence after this.

The seller told me that everything with the neighbours was fine

In McMeekin v Long [2003], the seller expressly answered “no” to questions about whether or not there were any disputes with neighbours or complaints about them as owners. The sellers in fact went further and orally stated that the neighbours were friendly.

The reality of the position was that there was an ongoing dispute about access to the property, parking and the access road, which the sellers had a right of way over.

The seller suggested that the dispute had been resolved, but the Court considered that there was a continuous confrontational atmosphere between the seller and the neighbours.

The Court specifically referred to how clear the questions in the property information form were and how it was written in such a way that it was designed for everyone to use and did not require any specific legal knowledge.

Based on the fact that anyone would clearly consider the facts of this case to amount to a dispute, the Court decided that there had been a fraudulent misrepresentation.

The seller told me that the property had never flooded

Whilst a Scottish case, and therefore not directly relevant to English Law, the case of Anwar v Britton [2018] (which involved arguments regarding a contractual clauses which sought to exclude representations), gives an example of how subjective questions regarding historical flooding of property can be and what flooding in fact means.

To one person, waterlogging may not constitute flooding, to others, it may very well do.

In this case, the buyer obtained a flood report which identified a low flood risk and recommended that the buyer raise this point with the seller. The seller’s solicitor explained that the seller had not experienced issues of flooding. It transpired that the stream which ran near the property had overflowed from time to time.

The Court held that this was a misrepresentation.

The seller said that there was no Japanese Knotweed on the property

Whilst we are unaware at this time of any reported cases on Knotweed, considering the increase in the number of nuisance claims arising as a result of knotweed being present on neighbouring land following cases such as Network Rail Infrastructure Limited v Williams [2018], it would not surprise us if there have been unreported misrepresentation claims.

Knotweed can be difficult and costly to eradicate, and to be informed that it is not present on the property when in fact it is or was, may very well amount to an actionable misrepresentation.

The seller told me that they were not aware of any developments or planning proposals in the area

In the case of Thorpe v Abbotts [2015] the sellers answered “No” to questions in the seller’s property information form regarding whether or not they had received any planning or other notices affecting the property or had any discussions or negotiations with any neighbour or authority about this.

The sellers had in fact attended public meetings regarding the proposed development of a site nearby to the property. This was at the time one of a number of sites that the local authority were considering for development.

Despite this, the Court found that there had been no misrepresentation. Broadly, the Court highlighted the fact that the property information form was designed for lay people to complete and required no specialist legal knowledge.

With this in mind, it considered that the answers to the questions were factually accurate, as at the time no definite plan to develop the nearby site had been reached, no planning notice served and no specific negotiations had taken place.

The seller told me that everything with the landlord was fine

In leasehold purchases, the new owner will become liable for the breaches of the lease by the previous tenant.

For example, if things such as ground rent or service charges have not been paid, it would mean that the new owner would be liable to pay these. It is therefore important that the position with the landlord is established and standard forms, including the leasehold information form, are normally used for this purpose.

In Greenridge Luton One Ltd v Kempton Investments Ltd [2016] the seller of an office block suggested in the Commercial Property Standard Enquiries Form that the tenant was not in arrears of service charges. This was not the case and significant arrears were found after exchange but before completion.

The Court held that this amounted to a misrepresentation and that the buyer was entitled to rescind the contract and recover its deposit.

What about auctions?

In Atlantic Estates Ltd v Ezekiel [1991] a property was put into an auction. The sales particulars in the auction catalogue described the property as a wine bar and showed a photograph of the wine bar with customers going in and out. The property did not in fact have a licence and was not currently used as a wine bar.

On appeal the Court found that the description of the property as a wine bar and the photograph together amounted to a misrepresentation, insofar as it suggested that there the premises could immediately be used as a wine bar.

With auctions, it is always advisable to take the auction pack, the relevant contractual terms and auction terms and conditions to a solicitor to check the position before bidding. Whilst the seller does not have to volunteer more information about it, this process does help to identify risks and potentially costly mistakes.

So what does the seller have to tell a buyer?

The short answer to this is “nothing”.

If the seller makes no representations about the property and tells the buyer to rely solely on their own investigations, there can be no claim for misrepresentation. The principle that applies is “buyer beware” or “caveat emptor”; it is for the buyer to decide whether or not to purchase the property based on the information they have.

In the case of Sykes v Taylor-Rose [2004], a question appearing in the property information form used at the time asked the seller the extremely broad question “Is there any other information which you think the buyer may have a right to know?” The seller answered “No”.

In fact, a murder had taken place in the property in the past but the Court decided that this was not something which the seller was obliged to disclose.

It considered the question subjective and on the basis that the sellers had answered it honestly, namely that they did not think it was relevant to the purchase, it was held that there had been no misrepresentation.

Conclusion

Every property misrepresentation case turns on its own unique facts. Whilst principles established in historical cases may be relevant, the simple solution to avoid issues in the future is to answer questions honestly or not at all.

However, mistakes can happen and if you have been adversely affected by a misrepresentation in any transaction, do feel free to get in touch with us.

This article is for information only. It is not a precise statement of the law and should not be relied upon as or for a substitution for proper legal advice. The circumstances of every case are different. We are always happy to discuss your circumstances to see if we can assist.

2 thoughts on “Property Misrepresentation Claims in Practice”

  1. Hi!
    I have been to a local solicitor in the past regarding a flat I purchased 4 years ago. They weren’t very helpful as they were not sure whether it would be a case against the landlord that owned the flat downstairs where there is trouble tenants. Or whether I could have a case against the sellers. I don’t have much to go on there at the time other than I knew there had been past disputes with problem tenants in the flat downstairs.
    However I am still having these ongoing issues (currently it is an alcoholic that is up all night and general nuisance). And due to this I have just been told by the landlord that owns it that the sellers had the council involved in the past disputes and were told the property has very poor sound insulation. Is this something that should have been declared when they sold to me? I specifically asked them if the flat was quiet and they told me “yes very”. I never would have gone ahead knowing about poor sound insulation and problem tenants over the years. I have been off work with stress. I feel ill and depressed m I feel like I would lose money if I try to sell (I am currently in dispute due to problem tenant downstairs). The main problem is I don’t know if I can proceed with legal case against the sellers. This feels like new evidence even though it has been 4 years. Would I have a case? Any advice greatly appreciated!
    Thank you for your time.

    Regards

    Kate Laing

    1. Thank you for your comment Kate and we are sorry to hear of this.

      We are afraid that we cannot give anything but general guidance on our website, primarily for the fact that without considering the position in detail with our clients, we cannot give accurate advice.

      The chances are that if you were given the express representation that the flat was quiet and there were no disputes with neighbours, then there may be a claim for misrepresentation so far as it can be proved that this was not the case.

      You may also have a claim against the freehold owner under the terms of your lease. Long leases will invariably contain clauses requiring the lessee not to cause a nuisance to other owners and these are normally mutually enforceable.

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