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 Property Information Form. Much of the time, the form used is the Law Society’s Property Information Form, sometimes referred to as the 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 answers them. If the seller has been as upfront as possible in response to those questions, the seller cannot normally be held liable for anything else they say.
What happens if the seller’s information is not accurate?
We see a lot of cases where a seller, sometimes unintentionally but sometimes deliberately, misleads a buyer by answering a question on the Seller’s Property Information Form or during negotiations incorrectly – or partly incorrectly so as to create a misleading impression. The buyer then purchases the property and moves in, only to discover that the information provided by the seller 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;
- stated that the boundaries are in one place or have not moved when in fact they are not or have been changed;
- suggested that the property does not suffer from damp, when it does;
- explained something in relation to an existing tenant which is incorrect; and
- stated that there are no planning or other proposals nearby which could have an effect on the property.
… the list goes on.
In all of these cases, the buyer may very well have a claim for misrepresentation, depending on what the seller said about the position.
If you are interested to read about real cases which have been decided by the Courts, examples can be found in our article Property Misrepresentation in Practice.
Misrepresentation is a false statement of fact that induces a party into a contract causing a financial loss. It does not have to be the sole inducement, but the buyer would have to have relied upon the statement to bring a claim. Read more about reliance in misrepresentation claims here.
Depending on whether or not the seller innocently, negligently or fraudulently answered the questions inaccurately 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 to return the property to the seller. This does not happen very often and a Court will normally award only 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. However, in some cases, additional damages can be awarded to cover other expenses incurred.
Diminution in value
To give an example of how diminution in value is calculated, we have acted for insurers in professional negligence claims against surveyors, who have failed to identify that a property suffered from subsidence. The measure of damages was based on diminution in value. 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, meaning that the impact on the value of the property was less.
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 considering it a 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 and because even with the defect, the property represented a good investment.
How can a seller ensure that their buyer will not bring a claim for misrepresentation 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, and how they would react if they bought a house with problems that were not disclosed.
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.
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?
In some circumstances, a seller is under a continuing obligation to ensure that their replies to enquires are accurate up to the date of exchange of contracts. Therefore if there is a change of circumstances meaning that the original statement is no longer accurate, there is every chance the seller would be obliged to update the buyer.
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?
Have you bought a house with problems which were not disclosed? Unfortunately, this is unlikely to give rise to a claim for misrepresentation.
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 and ask questions about it which are important to them.
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.
In some cases, a “half-truth” or explanation which is accurate on the face of it but misleading about the true circumstances of the matter can also amount to a misrepresentation.
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, as the buyer may not be prepared to proceed without an answer.
Sometimes a seller will qualify their response, but this in itself is not always enough to prevent a claim. It is important to discuss it with your property solicitor. You can be sued
If you are interested to read about real cases which have been decided by the Courts, examples can be found in our article “Property Misrepresentation Claims in Practice”.
If you are facing a claim for property misrepresentation or believe that you have a claim yourself, please do feel free to get in touch.
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.
Questions people ask about misrepresentation
As you can see, buying and selling property is not always as simple as you think. We’ve tried to address some common questions below, but if you are still unsure please feel free to contact us for an answer.
There is no specific definition of this but broadly this could be described as a claim which arises by reason of a misrepresentation occurring during a property transaction.
A seller does not have to volunteer information about a property. If a seller stays silent on something, a representation has not been made and a claim for misrepresentation can arise.
Damages for all types of misrepresentation cases are intended to put the claimant in the position that they would have been in had the misrepresentation not been made.
In property misrepresentation cases, this is normally the difference between what you paid for the property and what it would have been worth, had the truth been told. This is called diminution in value.
The seller does not have to disclose anything but if they do not, then a buyer might decide not to take the risk of buying the property.
Normally a seller will fill out a property information form. For residential purchases, the Law Society published a standard property information form for this purpose, called a TA6 or a TA7.
If a party to a contract deliberately misrepresented facts relating to the property with the intention of misleading the buyer, a fraudulent misrepresentation can arise. Often, such a representation does not need to be in writing.
There is case law on this and it will normally depend on whether or not you have received a formal planning notice.
Have a look at our article Property Misrepresentation Claims in Practice for a case on this point.