Misrepresentation In Property Sales: the consequences of not telling the truth when selling property
Buying property is a big investment for anyone, so it’s only right that the purchaser should be satisfied with what they are buying.
Likewise, the seller should be entitled to some comfort in knowing that once their property is sold, that is the end of the matter.
The Seller’s Property Information Form
During the conveyancing process, the buyer will ask the seller questions about their property. These are called pre-contract enquiries and requisitions on title. As part of the process of selling a property, the seller will normally complete a standard document called a Seller’s Property Information Form.
The idea behind this process is that the buyer satisfies themselves by asking the seller relevant questions, and the seller confirms that the buyer cannot rely on anything else apart from the answers the seller has given. This way, if the seller has been as upfront as possible in response to those questions, the seller cannot be held liable for anything else they say.
What happens if the seller’s information is not accurate?
Sadly, we see a lot of cases where a seller, sometimes unintentionally but sometimes deliberately, misleads a buyer by answering a question on the Property Information Form incorrectly – or partly incorrectly. The buyer then purchases the property and moves in, only to discover that what the seller’s information was inaccurate.
We have dealt with cases where a seller has:
- failed to disclose existing disputes with neighbours;
- suggested that a property does not suffer from a flooding issue when it does;
- inaccurately maintained that the property does not suffer from Japanese knotweed when it does; and
- stated that the boundaries are in one place when in fact they are not.
… the list goes on. We have also dealt with cases where a seller has believed that they were answering a question correctly.
In all of these cases, the buyer may very well have a claim for misrepresentation.
Misrepresentation is a false statement of fact which induces a party into a contract. It does not have to be the sole inducement, but the buyer would have to have relied upon it to bring a claim.
Depending on whether or not the seller innocently, negligently or fraudulently answered the questions wrongly in the Property Information Form, the buyer may be entitled to claim damages from the seller. In some cases, the buyer will be entitled to ‘rescind’ the contract. This means that the buyer is entitled to their money back and return the property to the seller. Primarily for practical reasons, this does not happen very often. You can view the Law Society’s specimen Property Information Form here.
What does usually happen is that the buyer is entitled to damages. Normally the measure of damages awarded to a buyer is based on ‘diminution in value‘, or the difference between what a buyer would have paid for the property knowing about the issue and what they actually did pay for it. This may not necessarily reflect the actual cost to the buyer in rectifying the issue.
Diminution in value
To give an example of how diminution in value is calculated, we have acted for insurers in negligence claims against surveyors who failed to identify that a property suffered from subsidence. The measure of damages was based on diminution in value. Sadly, the cost to the buyer in underpinning the property to stop the subsidence was greater than the actual loss suffered. This is because the property was situated in a highly sought after location with a large rental market.
Based on the fact that a hypothetical purchaser would have seen the property as an investment opportunity that could provide a return by renting it to tenants, rather than family home for life, the expert’s opinion was that a hypothetical purchaser would have been more likely to negotiate a smaller reduction in the purchase price than the full cost of the repairs, to make sure that their offer was accepted by the seller.
How can a seller ensure that their buyer will not bring a claim against them?
Sadly there is no way to be 100% certain that a buyer may not make a claim later. All a seller can do is minimise the risk of this as much as possible.
Although completing the Seller’s Property Information Form is not mandatory, it is unlikely that a buyer will proceed with the purchase if their questions are not answered.
Therefore when completing the Seller’s Property Information Form, the seller should answer questions as fully and honestly as possible. We often advise clients to think about what they would want to know about the property if they were buying it.
If a seller is not certain about an answer to a question in the Seller’s Property Information Form, they should think carefully about whether they want to answer it, or perhaps consider qualifying that answer.
What happens if the seller’s replies were accurate at the time they were given to the buyer, but by the time of exchange the information has changed?
Case law is clear that a seller is under a continuing obligation to ensure that their replies to enquires are accurate up to the date of exchange of contracts.
The Seller’s Property Information Form also specifically tells the seller that in the event that something happens which would mean that their replies are no longer accurate, they should notify their solicitor of this, who should in turn notify the buyer’s solicitor. If they don’t do this, the seller risks a potential claim against them for misrepresentation.
What if a seller knows something which is not specifically asked about by the buyer?
The basic position here is ‘caveat emptor’, or ‘buyer beware’. If a buyer does not ask the seller a question, they cannot then look to the seller for compensation if they discover something that they do not like about the property. It is up to the buyer to satisfy themselves that they want to purchase the property.
As the basic position in a property transaction is buyer beware, it follows that if no statement or answer is given by the seller, the buyer cannot be said to have relied on it to enter into the transaction.
Having said this, sometimes (but this is unlikely unless a special or fiduciary relationship exists) a misrepresentation can take place by a failure to mention something material to the transaction.
The moral of the story
Sellers should be upfront about any issues that affect the property and buyers should take all steps they consider appropriate to obtain the information that they want before committing to a purchase.
If a seller doesn’t know – or is unsure of – the answer to a buyer’s question, they should consider not answering the question.
However, by not providing a response the seller could be putting their sale at risk.
Sometimes the seller’s responses are qualified – but before giving a qualified response, it is important to discuss it with your solicitor, as a half-truth can also amount to a misrepresentation and require the services of a Litigation Solicitor.
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.